Facilitation of payments between counterparties by a central counterparty

ABSTRACT

A system for moving money between accounts of traders by a central counterparty to facilitate payments, i.e. the movement of funds, there between is disclosed which provides a flexible mechanism which supports simpler accounting, new types of derivatives contracts as well new types fees. The disclosed futures contract, referred to as a “payer” contract, comprises a “no-uncertainty” futures contract, i.e. the initial value and settlement value parameters are defined, that leverages the mechanisms of the clearing system to, for example, accommodate related payments. Accordingly, a 1-to-many relationship between contracts and prices is provided whereby each price component may be assigned its own payer contract. The function of the payer contract may be to guarantee the movement of money from related positions. In one embodiment, payer contracts are dynamically created whenever a payment is needed.

REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.14/573,455 (Attorney Ref. No. 4672/11002CUS) filed Dec. 17, 2014, whichis a continuation-in-part under 37 C.F.R. §1.53(b) of U.S. patentapplication Ser. No. 13/162,821 (Attorney Ref. No. 4672/11002AUS) filedJun. 17, 2011, all of which are hereby incorporated by reference intheir entirety.

BACKGROUND

Futures Exchanges, referred to herein also as an “Exchange”, such as theChicago Mercantile Exchange Inc. (CME), provide a marketplace wherefutures and options on futures are traded. Futures is a term used todesignate all contracts covering the purchase and sale of financialinstruments or physical commodities for future delivery or cashsettlement on a commodity futures exchange. A futures contract is alegally binding agreement to buy or sell a commodity at a specifiedprice at a predetermined future time. An option is the right, but notthe obligation, to sell or buy the underlying instrument (in this case,a futures contract) at a specified price within a specified time. Eachfutures contract is standardized and specifies commodity, quality,quantity, delivery date and settlement. Cash Settlement is a method ofsettling a futures contracts by cash rather than by physical delivery ofthe underlying asset whereby the parties settle by paying/receiving theloss/gain related to the contract in cash when the contract expires.

Typically, the Exchange provides a “clearing house” which is a divisionof the Exchange through which all trades made must be confirmed, matchedand settled each day until offset or delivered. The clearing house is anadjunct to the Exchange responsible for settling trading accounts,clearing trades, collecting and maintaining performance bond funds,regulating delivery and reporting trading data. Essentially mitigatingcredit. Clearing is the procedure through which the Clearing Housebecomes buyer to each seller of a futures contract, and seller to eachbuyer, also referred to as a “novation,” and assumes responsibility forprotecting buyers and sellers from financial loss by assuringperformance on each contract. This is effected through the clearingprocess, whereby transactions are matched. A clearing member is a firmqualified to clear trades through the Clearing House. In the case of theCME's clearing house, all clearing members not specifically designatedas Class B members are considered Class A clearing members. In the CMEthere are three categories of clearing members: 1) CME clearing members,qualified to clear transactions for all commodities; 2) IMM clearingmembers, qualified to clear trades for only IMM and IOM commodities; and3) IMM Class B clearing members, solely limited to conductingproprietary arbitrage in foreign currencies between a singleExchange-approved bank and the IMM and who must be guaranteed by one ormore Class A non-bank CME or IMM clearing member(s). Note that a“member” is a broker/trader registered with the Exchange.

As an intermediary, the Exchange bears a certain amount of risk in eachtransaction that takes place. To that end, risk management mechanismsprotect the Exchange via the Clearing House. The Clearing Houseestablishes clearing level performance bonds (margins) for all Exchangeproducts and establishes minimum performance bond requirements forcustomers of Exchange products. A performance bond, also referred to asa margin, is the funds that must be deposited by a customer with his orher broker, by a broker with a clearing member or by a clearing memberwith the Clearing House, for the purpose of insuring the broker orClearing House against loss on open futures or options contracts. Thisis not a part payment on a purchase. The performance bond helps toensure the financial integrity of brokers, clearing members and theExchange as a whole. The Performance Bond to Clearing House refers tothe minimum dollar deposit which is required by the Clearing House fromclearing members in accordance with their positions. Maintenance, ormaintenance margin, refers to a sum, usually smaller than the initialperformance bond, which must remain on deposit in the customer's accountfor any position at all times. The initial margin is the total amount ofmargin per contract required by the broker when a futures position isopened. A drop in funds below this level requires a deposit back to theinitial margin levels, i.e. a performance bond call. If a customer'sequity in any futures position drops to or under the maintenance levelbecause of adverse price action, the broker must issue a performancebond/margin call to restore the customer's equity. A performance bondcall, also referred to as a margin call, is a demand for additionalfunds to bring the customer's account back up to the initial performancebond level whenever adverse price movements cause the account to gobelow the maintenance.

The accounts of individual members, clearing firms and non-membercustomers doing business through the Exchange must be carried andguaranteed to the Clearing House by a clearing member. As mentionedabove, in every matched transaction executed through the Exchange'sfacilities, the Clearing House is substituted as the buyer to the sellerand the seller to the buyer, with a clearing member assuming theopposite side of each transaction. The Clearing House is an operatingdivision of the Exchange, and all rights, obligations and/or liabilitiesof the Clearing House are rights, obligations and/or liabilities of theExchange. Clearing members assume full financial and performanceresponsibility for all transactions executed through them and allpositions they carry. The Clearing House, dealing exclusively withclearing members, holds each clearing member accountable for everyposition it carries regardless of whether the position is being carriedfor the account of an individual member, for the account of a non-membercustomer, or for the clearing member's own account. Conversely, as thecontra-side to every position, the Clearing House is held accountable tothe clearing members for the net settlement from all transactions onwhich it has been substituted as provided in the Rules.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a block diagram of an exemplary network for trading futurescontracts, including in which payer contracts may be implemented,according to one embodiment.

FIG. 2 a block diagram of an exemplary implementation of the system ofFIG. 1 for facilitating payments between counterparties, e.g. first andsecond traders, by a central counterparty.

FIG. 3 depicts a flow chart showing operation of the system of FIGS. 1and 2.

FIG. 4 shows an illustrative embodiment of a general computer system 400for use with the system of FIG. 1.

DETAILED DESCRIPTION OF THE DRAWINGS AND PRESENTLY PREFERRED EMBODIMENTS

A system for moving money between accounts of traders by a centralcounterparty to facilitate payments, i.e. the movement of funds, therebetween is disclosed which provides a flexible mechanism which supportssimpler accounting, new types of derivatives contracts as well as newtypes of fees. As was discussed above, in futures contract clearing, amargin account offsets losses or gains related to the price change of acontract. If a trader's contract price increases or decreases, thechange in value is reflected in the margin account. In fact, generallythe only way to move money in or out of a margin account is by changingthe price of the futures contract. This is a one-to-one relationship:one contract, one cash flow. Current systems, however, cannot handlerelated cash flows like coupons, interest on variation margin, or otherperiodic or occasional payments made by one trader to another while therelated position remains open, e.g. a one-to-many relationship: onecontract, two or more cash flows. In the over-the-counter (“OTC”)market, for example, if a trader's position decreases, the trader mustmake a cash payment (collateral) to the prime broker account of thecounterparty. An important distinction in OTC markets is that anycollateral in the prime broker account of a counterparty remains theproperty of the trader, and thus the trader is entitled to at least oneadditional margin account cash flow, which is interest on thecollateral. Current futures contract clearing systems do not supportthis type of payment requiring separate/external ad hoc payment andaccounting mechanisms to manage.

Exchange derivative contracts having a periodic or sporadic payment fromone party to the contract to the other; or, a payment between theexchange and a party to a derivatives contract, have been proposed.However, a problem with such payments is that exchange clearing systemsmust be coordinated with adjacent non-exchange owned and operatedbookkeeping services and systems to account for and manage these relatedpayments. So even if the exchange were to configure its systemsaccordingly to accommodate such periodic or other related payments,difficulties are often experienced in coordinating these capabilitieswith the (many) bookkeeping service providers or the (many) proprietarybookkeeping systems, such as “front-end” independent software vendors(“ISV's”) and “back-end” bookkeeping services that interact with theExchange. Thus, acceptance of novel contracts that utilize such periodicpayments may be impeded.

The disclosed futures contract, referred to as a “payer” contract,comprises a “no-uncertainty” futures contract, i.e. the initial valueand settlement value parameters are defined and/or pre-determined and,thereby, the buyer and seller are not exposed to market risk. Thedisclosed payer contract leverages the mechanisms of the clearing systemto accommodate, for example, a related, e.g. life cycle, paymentfeatured by a traditional contract to which it may be paired.Accordingly, a 1-to-many relationship between contracts and prices isprovided whereby each price component may be assigned its own payercontract. The function of the payer contract is to guarantee, bycreating a defined and riskless position value and settlement value, themovement of money from related positions. In one embodiment, payercontracts are dynamically created whenever a payment is needed inrelation to some other position held by the parties, though they may bemanually created in such situations as well. In addition, the tradersamong which the payment is to be transferred need not know of eachother, the disclosed mechanism, and the central counterpartyunderpinnings, facilitating anonymous payments there between.

The disclosed embodiments have application with respect to a potentiallywide variety of exchange traded, multi-laterally cleared derivativescontracts and have the advantage of being “implementable” by an Exchangewithout explicit coordination with adjacent non-exchange owned andoperated bookkeeping service providers. In particular, any contractstructure that contemplates a “pass-through” of monetary value for thepurposes of creating a pseudo coupon payment, dividend payment, feepayment, swap payment, rolling spot interest pass-through payment, etc.may use the disclosed embodiments to effect payment.

Derivative contracts, such as those traded or cleared at CME Group, havebecome increasingly complex in recent years. In particular, the demandto replicate the operational requirements of over-the-counter (OTC)derivatives with their emphasis on customization has proven to bechallenging. The disclosed payer contract may address these issues anddifficulties,

For example, consider a contract that replicates an interest rate swap(“IRS”) which, typically, contemplates periodic swaps of cash calculatedby reference to a fixed and a floating interest rate. It will beappreciated that such occasional payments are not a standard feature offutures contracts and are not simply a function of the dailymark-to-market (“MTM”) of a futures contract by reference to the dailysettlement price. Rather, standard futures contracts contemplate asingle “reckoning” upon a single final settlement date.

A payer contract may be generated by an Exchange, such as CME Group, soas to flow seamlessly into adjacent private systems, including back-endbookkeeping service systems, obviating the necessity for the bookkeepingservice to build out new capabilities. That is, while the Exchange,and/or Clearing House thereof, may still need to build the capability ofgenerating payer contracts, such as on an automated basis, when theseauto-generated contracts are created, they may flow into accounts thatare kept in adjacent bookkeeping systems easily.

In one embodiment a payer contract may be valued on a “binary basis”,referred to as a “binary option,” at either $0 or $1, at the discretionof the Exchange. The “switch” may be set by the Exchange in the same waythat a cash-settled futures contract is valued at a particular value onits final settlement date. Thus, an account holding a long payercontract may receive either $0 or $1 on the final settlement date of thecontract. An account holding a short payer contract may receive either$0 or be obligated to pay $1 on the final settlement date of thecontract.

It will be understood that a margin account offsets gains or lossesrelated to the price change of a futures contract held by a trader. If atrader holds a “long” position (obligated to buy) on a contract forwhich the price increases or holds a “short” position (obligated tosell) on a contract for which the price decreases, the trader's risk ofloss goes down and their margin requirement will go down which mayresult in funds being credited to their margin account by the clearingand margin mechanisms of the Exchange, the crediting occurringsubstantially simultaneously with a debiting of similar magnitude fromthe margin account of the trader holding the counter position. That is,for the trader holding a long position on a contract for which the pricedecreases or holding a short position on a contract for which the priceincreases, the trader's risk of loss goes up and their marginrequirement will go up which may result in funds being debited fromtheir margin account. The clearing organization of the central counterparty automatically determines the daily contract settlement prices andcorresponding margin requirements for the traders and automaticallymoves the funds as appropriate to ensure performance by the parties. Inthe case of a cash-settled contract, at the settlement date, the buyerand the seller may simply exchange the difference in the associated cashpositions. The cash position is the difference between the spot price ofthe asset on the settlement date and the agreed upon price as dictatedby the future contract. If the spot price is less than the contractprice, the buyer pays the seller the difference. If the spot price ismore than the contract price, the seller pays the buyer the difference.This cash settlement may be effected via the margin accounts of thetraders as described above.

By generating payer contracts on an automated basis in particularaccounts held at the Clearing House, funds may effectively be moved fromone party, the “payor”, to the other party, the “payee”, of contractsbooked on the Exchange. That is, in the case of binary payer contracts,by assigning a quantity of contracts based on the payment amount, whichmay be determined at, or prior to, settlement, the appropriate amountmay be paid by the payor to the payee. Given the operation of themargining systems of the Exchange, this may be accomplished by valuingthe position in the contracts at a zero value and then setting anon-zero value, e.g. $1 per contract, at settlement, thereby creating anincrease in contract value and a gain for the long position and loss forthe short position, the margining mechanisms of the Exchangeautomatically, or naturally, moving the appropriate funds from theaccount of the short trader to the account of the long trader.Conversely, the position in the contracts may be initially valued at anon-zero amount, e.g. $1, and then settled at a value of zero, therebycreating a decrease in the contract value and a loss for long positionand a gain for the short position, the margining mechanisms of theExchange automatically, or naturally, moving the appropriate funds fromthe account of the long trader to the account of the short trader. Ineither case, the initial contract value and settlement value, andassignment of corresponding long and short positions to the payor andpayee, are implementation dependent. The utility of the disclosed payercontracts may be extended and applied in many other ways as describedbelow.

It will be appreciated that construction of a payer contract as a“binary option” valued at either $0 or $1 at expiration may implycertain limitations. Consider that some systems of the Exchange oradjacent front-end or back-end systems may be limited in terms of thefield size reserved in their record keeping systems or databases forquantity of futures contracts traded or held. For example, if a systemis constructed to reserve 4 decimal digits, or the binary equivalentthereof, for the quantity field, the maximum number of futures contractsmay be limited to 9,999. Or, if the quantity field is limited to 5digits, the maximum quantity may be 99,999. This may be problematic ifthe value to be transferred is greater than $1 times that maximumquantity.

Thus, in an alternate embodiment, an “analog” payer contract may bedefined instead of, or in addition to, the binary payer contract. Itwill be recognized that the binary payer contract is a variant of theanalog payer contract in which case it need not be specifically defined.Analog payer contracts may be valued on an analog scale akin to astandard index futures contract, having a quantity, which may be greaterthan or equal to 1, and price associated therewith. Thus, they may becash-settled at, for example, a multiplier $X, e.g. a pseudo quantity,multiplied by an arbitrary value or Final Settlement Price that mayrange from infinity (∞) to negative infinity (−∞). Alternatively, themultiplier may be altered, e.g. instead of establishing the multiplierat $1, it may be at $0.01, $10, $100, $1,000, $10,000, $100,000 asappropriate for the specific application. The multiplier and finalsettlement price may be determined based on the amount of the payment tobe made and, for example, the respective record keeping fields sizes,i.e. such that the magnitude of the respective multiplier/quantity andsettlement price values can be handled by the record keeping systems,e.g. to avoid overflow, and still be used to handle the expected paymentamounts. It will be further appreciated that the balancing of themagnitude of the multiplier versus the magnitude of the price may varybut still achieve the same payment amount and, therefore, may be basedon other factors such as the convenience of the traders in viewing,reporting and comprehending the values, etc.

For example, an analog payer contract having an initial value of zero,may be valued at $1×Final Settlement Price at settlement. The FinalSettlement Price may be established at 10,000. Thus, the analog payercontract is valued at $10,000 (=$1×10,000.00). The account holding asingle long position (quantity=1) in the analog payer contract mayreceive $10,000 while the account holding a single short position pays$10,000.

Payer contracts may have many applications, such as in the context ofexchange cleared interest rate swaps (“IRS”) where these contracts maybe used to move the “price alignment interest” (“PAI”). For example, thebuyer of an IRS may be required to pay the seller a value calculated byreference to a fixed rate of interest on a periodic basis for the lifeof the transaction. The seller of an IRS may be required to pay thebuyer a value calculated by reference to a floating or dynamic rate ofinterest on a periodic basis for the life of the transaction. Typically,these payments are “netted” so that gross values are not transferred butonly net values. Payer contracts may be utilized to provide for suchtransfers of value.

Payer contracts may also be: linked with interest rate derivativescontracts for purposes of making what may essentially be regarded ascoupon payments from one party of the trade to the other; linked withequity based derivatives contracts for purposes of making what mayessentially be regarded as dividend payments from one party of the tradeto the other; and/or used to implement rolling spot contracts which areestablished from time to time in the context of FX markets and aredesigned to price in manner similar to the spot value of a currency byrequiring a, typically, daily payment that reflects the interest ratedifferential between the two currencies.

Alternatively, or in addition thereto, payer contracts may be used toimplement fee payments, such as transaction fees. The typical exchangefee model is based on volume or turnover, i.e., when a trade isconsummated, both buyer and seller pay a pre-determined exchange fee.However, futures contracts do not typically contemplate fees based onthe value or notional value of the underlying instrument, which may beconsidered in a manner similar to a management fee typically associatedwith fund investments. While there have been some attempts to collectwhat may be regarded as a form of management or holding fee in thecontext of CME TRAKRS, i.e. non-traditional futures contracts designedto provide customers with a cost-effective way to invest in abroad-based index of stocks, bonds, currencies or other financialinstruments avoiding, for example, the need for a portfolio manager andpotential adverse tax consequences, and some over-the-counter commodityindexes listed on CME Group facilities, these products and this feesystem required complex programming and coordination with back-endbookkeeping services. Payer contracts may be created to pay these feesfrom an account to the account of the Exchange or possibly to otheraccounts held by those with rights in a particular contract or otherarrangements to share in fees.

The disclosed payer contracts may be created with various nomenclaturedesignations, e.g., coupons, dividends, rolling spot payments, swappayment, fee, etc. By attaching such nomenclature to these contracts,akin to the way that the term “E-mini S&P 500 futures” may be associatedin clearing and bookkeeping systems with the ticker symbol “ES,” thepurpose of such payer contract may be made transparent to thoseexamining an account statement. Likewise, payer contracts with differentunderlying purposes may be constructed with different contract terms andconditions as deemed most conducive to the purpose.

While the disclosed embodiments will be described in reference to theCME, it will be appreciated that these embodiments are applicable to anyExchange, including those which trade in equities and other securities.The CME Clearing House clears, settles and guarantees all matchedtransactions in CME contracts occurring through its facilities. Inaddition, the CME Clearing House establishes and monitors financialrequirements for clearing members and conveys certain clearingprivileges in conjunction with the relevant exchange markets.

Referring now to FIG. 1, there is shown a block diagram of an exemplarynetwork 100 for trading futures contracts, including in which payercontracts may be implemented, according to the disclosed embodiments.The network 100 couples market participants 104, 106, such as thoseentities 104 wishing or needing to make a payment, also referred to aspayors, and those entities 106 to which the payment is to be made, alsoreferred to as payees, with an exchange 108, such as the CME, alsoreferred to as a central counterparty or intermediary, via acommunications network 102, such as the Internet, an intranet or otherpublic or private, secured or unsecured communications network orcombinations thereof. The network 100 may also be part of, oralternatively coupled with a larger trading network, allowing marketparticipants 104 106 to trade other products, such as futures contracts,options contracts, foreign exchange instruments, etc., via the exchange108, including derivatives contracts featuring periodic or occasionalpayments prior to settlement. It will be appreciated that the pluralityof entities utilizing the disclosed embodiments, e.g. the marketparticipants 104, 106, may be referred to as payors, payees, lenders,borrowers, traders, market makers or by other nomenclature reflectingthe role that the particular entity is performing with respect to thedisclosed embodiments and that a given entity may perform more than onerole depending upon the implementation and the nature of the particulartransaction being undertaken, as well as the entity's contractual and/orlegal relationship with another market participant 104 106 and/or theexchange 108.

Herein, the phrase “coupled with” is defined to mean directly connectedto or indirectly connected through one or more intermediate components.Such intermediate components may include both hardware and softwarebased components. Further, to clarify the use in the pending claims andto hereby provide notice to the public, the phrases “at least one of<A>, <B>, . . . and <N>” or “at least one of <A>, <B>, <N>, orcombinations thereof” are defined by the Applicant in the broadestsense, superseding any other implied definitions herebefore orhereinafter unless expressly asserted by the Applicant to the contrary,to mean one or more elements selected from the group comprising A, B, .. . and N, that is to say, any combination of one or more of theelements A, B, . . . or N including any one element alone or incombination with one or more of the other elements which may alsoinclude, in combination, additional elements not listed.

The exchange 108 implements the functions of matching 110 buy/selltransactions, clearing 112 those transactions, settling 114 thosetransactions and managing risk 116 among the market participants 104 106and between the market participants and the exchange 108, as well aspayment functionality 122 for administering payments between payors andpayees as will be described. The exchange 108 may be include or becoupled with one or more database(s) 120 or other record keeping systemwhich stores data related to open, i.e. un-matched, orders, matchedorders which have not yet been delivered, as well as payments made orowing, or combinations thereof.

Typically, the exchange 108 provides a “clearing house” (not shown)which is a division of the Exchange 108 through which all trades mademust be confirmed, matched and settled each day until offset ordelivered. The clearing house is an adjunct to the Exchange 108responsible for settling trading accounts, clearing trades, collectingand maintaining performance bond funds, regulating delivery andreporting trading data. Essentially mitigating credit. Clearing is theprocedure through which the Clearing House becomes buyer to each sellerof a futures contract, and seller to each buyer, also referred to as a“novation,” and assumes responsibility for protecting buyers and sellersfrom financial loss by assuring performance on each contract. This iseffected through the clearing process, whereby transactions are matched.A clearing member is a firm qualified to clear trades through theClearing House.

In the presently disclosed embodiments, the Exchange 108 assumes anadditional role as the central counterparty in payment transactions,i.e., the Exchange 108, via the margin mechanisms, will become the payeeto each payor and payor to each payee, and assume responsibility forprotecting payees and payors from financial loss by assuring performanceon each payment contract, as is done in normal futures transactions.Additionally, the Exchange 108 may further assume the role asadministrator of products, i.e. derivatives contracts, which requirepayments, computing when a payment is due, computing the amount of thepayment and automatically generating the payer contracts to effect thepayment by the due date. As used herein, the term “Exchange” 108 willrefer to the centralized clearing and settlement mechanisms, riskmanagement systems, etc., as described below, used for futures trading,including the described enhancements to facilitate payment transactions.By assuming this intermediary role and employing credit screening andrisk management mechanisms, derivatives contracts having periodic oroccasional payments may be implemented for parties desiring suchcontracts. Further, additional revenue sources for the Exchange may befacilitated, such as account maintenance fees on accounts holding openfutures positions.

Referring back to FIG. 1, a system 124 for facilitating a paymentbetween a first trader 104 and a second trader 106 by a centralcounterparty 108 which requires the first and second traders 104 106 toeach maintain associated accounts in which funds are deposited to covertrading losses. The system includes an account database 120 stored in amemory 404 discussed below with reference to FIG. 4, the accountdatabase 120 comprising a first account record associated with the firsttrader 104 which includes data reflecting funds maintained on account tocover trading losses by the first trader 104, and a second accountrecord associated with the second trader 106 which includes datareflecting funds maintained on account to cover trading losses by thesecond trader 106.

The system 124 further includes a payment processor 122 coupled with thedatabase 120, or memory 404 storing it, and operative to determine theamount of a payment to be made from one of the first or second trader104 106 to the other of the first or second trader 104 106 at asettlement date, wherein the payment processor 122 is further operativeto assign the first trader 104 a first position in a futures contractcharacterized by the settlement date, a quantity and a price, the firstposition being characterized by a value based on the quantity and theprice of the futures contract as of the assignment, and assign thesecond trader 106 a second position, counter to the first position, inthe futures contract, the first and second traders not being identifiedto each other. In one embodiment, the payment processor 122 is operativeto determine the payment amount upon occurrence of the settlement date.Alternatively, the payment amount is determined in advance of thesettlement date.

The system 124 further includes a settlement processor 114 coupled withthe database 120, or memory 404 storing it, and operative to value, uponoccurrence of the settlement date, the futures contract at a spot valuedifferent from the price of the futures contract, the difference beingbased on the determined payment amount.

In addition, the system 123 includes a margin processor 116 coupled withthe settlement processor 114 and the database 120, or memory 404, andoperative to modify the first and second account records in the accountdatabase to reflect a credit to the account of the first trader 104 anda debit from the account of the second trader 106 in the amount of thedifference between the value of the first position and the spot valuewhen the difference represents a loss for the second trader 106, andmodify the first and second account records in the account database toreflect a debit from the account of the first trader 104 and a credit tothe account of the second trader 106 in the amount of the differencebetween the value of the first position and the spot value when thedifference represents a loss for the first trader 104.

In one embodiment, the payment processor 122 may be further operative toautomatically assign the first and second positions to the first andsecond traders 104 106 based on a second position in a second instrumentheld by the first trader 104 to which the second trader 106 is acounterparty. For example, the second instrument may include a interestrate derivative, the payment comprising a coupon payment, the secondinstrument may include an equity based derivatives contract, the paymentcomprising a dividend payment, the second instrument may include aforeign exchange spot contract, the payment comprising an interest ratedifferential payment, the second instrument may include interest rateswap, the payment comprising an interest payment, the second instrumentmay include a loan of collateral, the payment comprising an interestpayment, the payment may include a transaction fee, or combinationsthereof.

In one embodiment, the quantity of futures contract may be 1, thepayment processor 122 being further operative to assign the first andsecond positions in a plurality of the futures contract, the quantity ofthe plurality of the futures contract being determined based on thepayment amount. For example, the value of the first and second positionsas of the assignment may be zero wherein the spot value is non-zero.Alternatively, the spot value may be valued based on a multiplier and afinal settlement value, wherein the multiplier may be 0.01, 0.10, 1.00,10.00, 100.00, 1000.00, 10,000.00, or some other value.

In one embodiment, the value of the first and second positions as of theassignment may be non-zero, such as based on a multiplier and a finalsettlement value, and wherein the spot value may be zero. The multipliermay include 0.01, 0.10, 1.00, 10.00, 100.00, 1000.00, 10,000.00, or someother value.

Referring to FIG. 2, there is shown a block diagram of an exemplaryimplementation of the system 124 for facilitating payments betweencounterparties, e.g. first and second traders, by a central counterpartywhich requires the first and second traders to each maintain associatedaccounts in which funds are deposited to cover trading losses, thecentral counterparty comprising a processor 202 and a memory 204 coupledtherewith, such as the processor 402 and memory 404 shown in FIG. 4 anddescribed in more detail below. The system 124 includes an accountdatabase 120 stored in the memory 204, the account database 120comprising a first account record associated with the first trader 104which includes data reflecting funds maintained on account to covertrading losses by the first trader 104, and a second account recordassociated with the second trader 106 which includes data reflectingfunds maintained on account to cover trading losses by the second trader106. The system 124 further includes first logic 206 stored in thememory 204 and executable by processor 202 to determine the amount of apayment to be made from one of the first or second trader 104 106 to theother of the first or second trader 104 106 at a settlement date, i.e.the payment amount is determined in advance of settlement thereof andthen paid on the settlement date. The first logic 206 may be furtherexecutable to assign the first trader 104 a first position in a futurescontract characterized by the settlement date, a quantity and a price,the first position being characterized by a value based on the quantityand the price of the futures contract as of the assignment, and assignthe second trader 106 a second position, counter to the first position,in the futures contract, the first and second traders 104 106 not beingidentified to each other.

The system 124 further includes second logic 208 stored in the memory204 and executable by the processor 202 to value, upon occurrence of thesettlement date, the futures contract at a spot value different from theprice of the futures contract, the spot value, and thereby thedifference, being based on the determined payment amount.

In addition, the system 124 includes third logic 210 stored in thememory 204 and executable by the processor 202 to modify the first andsecond account records in the account database to reflect a credit tothe account of the first trader 104 and a debit from the account of thesecond trader 106 in the amount of the difference between the value ofthe first position and the spot value when the difference represents aloss for the second trader 106, and modify the first and second accountrecords in the account database to reflect a debit from the account ofthe first trader 104 and a credit to the account of the second trader106 in the amount of the difference between the value of the firstposition and the spot value when the difference represents a loss forthe first trader 104.

FIG. 3 depicts a flow chart showing operation of the system of FIGS. 1and 2. In particular FIG. 3 shows a computer implemented method offacilitating a payment between a first trader and a second trader by acentral counterparty which requires the first and second traders to eachmaintain associated accounts in which funds are deposited to covertrading losses, the central counterparty comprising a payment processor122, a settlement processor 114, a margin processor 116, and a memory(not shown) such as the memory 404 of FIG. 4, coupled with the payment,settlement and margin processors 122 114 116. The method includes:providing, by the central counterparty, an account database stored inthe memory, the account database comprising a first account recordassociated with the first trader which includes data reflecting fundsmaintained on account to cover trading losses by the first trader, and asecond account record associated with the second trader which includesdata reflecting funds maintained on account to cover trading losses bythe second trader (block 302); determining, by the payment processor122, the amount of a payment to be made from one of the first or secondtrader to the other of the first or second trader at a settlement date(block 304), such as upon occurrence of the settlement date or priorthereto, i.e. the payment amount is determined in advance of settlementthereof and then paid on the settlement date; assigning, by the paymentprocessor 122, the first trader a first position in a futures contractcharacterized by the settlement date, a quantity and a price, the firstposition being characterized by a value based on the quantity and theprice of the futures contract as of the assigning (block 306);assigning, by the payment processor 122, the second trader a secondposition, counter to the first position, in the futures contract, thefirst and second traders not being identified to each other (block 308);valuing, by the settlement processor 114 upon occurrence of thesettlement date, the futures contract at a spot value different from theprice of the futures contract, the spot value, and thereby by thedifference, being based on the determined payment amount (block 310);modifying, by the margin processor 116, the first and second accountrecords in the account database to reflect a credit to the account ofthe first trader and a debit from the account of the second trader inthe amount of the difference between the value of the first position andthe spot value when the difference represents a loss for the secondtrader (block 312); and modifying, by the margin processor 116, thefirst and second account records in the account database to reflect adebit from the account of the first trader and a credit to the accountof the second trader in the amount of the difference between the valueof the first position and the spot value when the difference representsa loss for the first trader (block 314).

In one embodiment, the assigning to the first and second traders isautomatically performed by the central counterparty based on a secondposition in a second instrument held by the first trader to which thesecond trader is a counterparty. For example, the second instrument mayinclude a interest rate derivative, the payment comprising a couponpayment, the second instrument may include an equity based derivativescontract, the payment comprising a dividend payment, the secondinstrument may include a foreign exchange spot contract, the paymentcomprising an interest rate differential payment, the second instrumentmay include interest rate swap, the payment comprising an interestpayment, the second instrument may include a loan of collateral, thepayment comprising an interest payment, the payment may include atransaction fee, or combinations thereof

In one embodiment, the quantity of futures contract may be 1, theassigning of the first and second positions to the first and secondtraders respectively, further comprising assigning the first and secondpositions in a plurality of the futures contract, the quantity of theplurality of the futures contract being determined based on the paymentamount.

In one embodiment, the value of the first and second positions as of theassigning may be zero and the spot value may be non-zero, such as basedon a multiplier and a final settlement value. The multiplier may include0.01, 0.10, 1.00, 10.00, 100.00, 1000.00, 10,000.00, or other value.

In one embodiment, the value of the first and second positions as of theassigning may be non-zero wherein the spot value is zero. The value ofthe first and second positions may be based on a multiplier and a finalsettlement value where the multiplier may be 0.01, 0.10, 1.00, 10.00,100.00, 1000.00, 10,000.00 or another value.

While the disclosed embodiments were discussed above with respect to thepayment of price alignment interest for Interest Rate Swap contracts, aswas discussed above, the disclosed embodiments have application withrespect to a potentially wide variety of exchange traded,multi-laterally cleared derivatives contracts, including new contracttypes not implemented previously. As discussed above, the disclosedpayer contracts are cash-settled constructs that may be assigned to longand short futures accounts. They are arbitrarily assigned a cash valueon a specified final settlement date and may be used to provide for themechanical payment or pass-through of a cash amount from long to short;or, from short to long, as appropriate. Accordingly, the disclosed payercontract may be used in conjunction with appropriately structuredfutures contracts to more simply, accurately and efficiently mimic orotherwise simulate, using a central counterparty based data andtransaction processing system, the financial and/or economiccharacteristics of various other financial instruments which featureperiodic cash flows among the participants to the transaction.

For example, the disclosed payer contract may be used in conjunctionwith an appropriately structured futures contract to simulate anexchange traded fund (“ETF”), a Treasury instrument (coupon bearingfixed income or money market instrument), a Treasury Inflation ProtectedSecurity, or an Interest Rate Swap instrument. While the disclosedsimulated instruments will be described with respect to beingimplemented using the payment mechanism, e.g. payer contract, describedabove, it will be appreciated that other mechanisms for facilitating themovement of the periodic cash flows may be used.

This disclosed embodiments may be used to implement: (1) DividendAccruing Futures (DAF) Contracts; (2) Fixed Settlement/Coupon GeneratingFutures Contracts; (3) Inflation Protected Futures (IPFs); and (4)Futures Contracts Using Fixed vs. Floating Rate Pass-Through, as will bedescribed. In particular, these instruments, which, as described below,may be constructed as a futures contract, all utilize a cash“pass-through” mechanism, such as the payer contract discussed above,from short to long; or, long to short, contingent upon thecircumstances. Further, they all use this mechanism in an attempt toreplicate the cash flows of other extant financial products.

In one embodiment, the Dividend Accruing Futures (DAFs) contractcontemplates the periodic—likely quarterly—payment from shorts to longsin an amount dictated by the observed dividend accruals associated witha stock index, e.g., the Standard & Poor's 500 (S&P 500). This mimicsthe quarterly payment of accrued dividends to holders of Exchange TradedFunds (ETFs) such as the S&P 500 SPDRs ETF.

In one embodiment, the Fixed Settlement/Coupon Generating Futurescontract contemplates a periodic payment of an amount established byreference to a fixed percentage applied to a fixed base amount such as2% of $100,000 on an annualized basis ($2,000), or 1% of $100,000 on asemi-annual basis. This payment would flow from short to long. Thismimics the structure of a Treasury security.

In one embodiment, the Inflation Protected Futures (IPF) contractlikewise contemplates a periodic payment of an amount established byreference to a fixed percentage applied to a base amount. But in thiscase, the base amount is variable as a function of inflation. Thus, wemight have a 2% annual payment or 1% semi-annually applied to $100,000or $1,000. But if the inflation reference has risen by 1% by the nextsemi-annual payment date, the base amount may have risen to $101,000—and1% of $101,000 equals $1,010. This payment would flow from short tolong. This mimics the structure of a Treasury Inflation ProtectedSecurity or TIPS.

In one embodiment, the futures contract using a fixed vs. floating ratepass-through may contemplate a periodic (quarterly or semi-annual)payment of an amount established by the differential between a fixedrate such as 2% annually or 0.5% quarterly against a fixed base amountsuch as $100,000- or $500 quarterly. This fixed amount is matched with afloating rate established by reference to current LIBOR rates or othershort-term rates applied to a fixed base amount—such as 1.2% annualizedapplied to $100,000 on a quarterly basis—or $300 [=(1.2%/4)×$100,000].Balancing the $500 fixed payment with a $300 floating rate payment, wehave a net payment of $200. In this case, the net payment of $200 wouldpass from short to long. But assume that the floating payment is 3%annualized or $750 on a quarterly basis [=(3%/4)×$100,000]. Thus, thenet payment is −$250 or the $500 fixed payment vs. the $750 floatingpayment. This net payment of $250 would pass from long to short. This isintended to mimic the structure of a conventional or “plain vanilla”interest rate swap (IRS) instrument.

As will be appreciated, the above introduced instruments, which may beimplemented as futures contracts as will be described in more detailbelow, mimic the structure of various other financial instruments tradedper different regulatory regimes—specifically, ETFs, Treasuries, TIPSand over-the-counter (OTC) IRS instruments. Further, by utilizingfutures contracts a central clearing/counter party based transactionprocessing system may be used which provides for risk/credit managementvia the novation and margin processes as well as allowing for nettingand/or offsetting of positions. This may further allow the hereindescribed contracts to be traded in combination, e.g. as a spreadtransaction. For example, by trading a spread between a standard futurescontract and a Dividend Accruing Futures contract, one may be able toeffectively trade dividends. Where a trader holds a position in one ofthe disclosed contracts they may further hold correlated positions whichmay allow for a reduced margin amount due to a reduction in their riskof loss. For example, a Dividend Accruing Futures contract may becorrelated with an S&P 500 futures contract.

There are multiple potential advantages in these structures as outlinedbelow:

-   -   Hedging Utility—The central purpose of any futures contract may        be to provide a risk-management or hedging vehicle. Because the        above introduced contracts are designed to mimic the cash flows        of the instrument with which they are linked, the hedging        utility of the products may be tremendously enhanced. Futures        contracts today are generally linked with items such as stocks,        bonds or swaps in much less direct fashion without any periodic        cash flows at all. Thus, asset managers are compelled to drive        often complicated “hedge ratios” to find the appropriate way to        structure a hedge. While the monetary value of the futures        contract may generally parallel the value of the hedged        instrument, there are still many loose ends because of the        inability to mimic the cash flows.    -   Hedge Accounting Issues—In the United States, one may apply        so-called “hedge accounting principles” per the Financial        Accounting Standards Board Statement No. 133 (FASB 133). This        Statement is intended to address situations where, for example,        one is holding an asset on the balance sheet on a cost basis—but        may be compelled to recognize gains and losses in the underlying        asset in each income statement to the extent that they may be        “marked-to-market” (MTM). Under certain conditions, FASB 133        allows the asset holder to defer recognition of gains and losses        in a futures contract or other derivative instruments until such        time as the (presumably offsetting) loss or gain, respectively,        is recognized with respect to the hedged asset.    -   But one must often jump through some hoops to qualify for        hedging accounting practices. There are two methods to so        qualify—the (1) correlation test; and (2) the critical terms        test.    -   The correlation test means that one must apply an ex-ante and        post-hoc test to ascertain sufficient correlation between the        hedged item and the hedging vehicle. As a general rule, the        accounting profession accepts an ex-ante correlation of 80% or a        correlation coefficient (R-squared) of 90%. In addition, there        is a post-hoc test to determine that the movements in the        hedging vehicle fluctuated within a range of 80-125% of        movements in the asset to be hedged. It is sometimes difficult        to meet this post-hoc test criteria where there has been very        little movement in the market. Thus, hedgers typically prefer        situations where they may apply the so-called critical terms        test. I.e., where they are simply required to document that the        various key terms in the hedged instrument correlate closely        with the key terms of the derivative with which they are        conducting the hedge. These critical terms may include a        matching of the notional size of the hedged item and derivative;        the maturation of the two items, etc. In addition, the cash        flows of the hedged asset may, under some circumstances be        considered amongst the critical terms.    -   The disclosed embodiments are intended to facilitate hedging by        rendering it easier to qualify for FASB 133 hedge accounting        treatment by reference to the critical terms test.    -   Futures as Investment Vehicles—While there is no strict rule in        this regard, futures are generally considered and utilized as        short-term “trading vehicles” that are often “flipped” with high        frequency. On the other hand, items such as ETFs, Treasury        securities, TIPS, IRS instruments are often regarded as        longer-term or buy-and-hold “investment vehicles.” Even the tax        treatment of futures under IRS Section 1256 promotes use of        futures as short-term trading vehicles instead of long-term        investment vehicles. This section of the Code requires that,        under certain circumstances, the gain or loss on futures        contracts be treated as if 60% were long-term capital gain or        loss and 40% were short-term capital gain or loss. Thus, futures        traders may qualify for a net reduced tax rate relative to a        straight S-T capital item—but a higher rate relative to a L-T        capital item. Thus, “traders” gravitate towards futures while        “investors” who may hold an asset for an extended period might        tend to gravitate towards these other items such as ETFs,        Treasuries, TIPS or swaps.    -   Periodically, however, legislators consider measures that would        “mainstream” the tax treatment of futures, eliminating the 60/40        tax treatment. Thus, futures product structures may be        considered that are more familiar and palatable on the part of        traditional long-term investors as a possible strategic        initiative. These structures render futures more suitable as        investment vehicles.    -   Cash/Futures Arbitrage—Cash/futures arbitrage is the process by        which professional traders attempt to capitalize on small        aberrations between the value of a futures contract and its        underlying cash or spot instrument. To the extent that these        transactions may be concluded on very small profit margins with        minimal risk, the arbitrage is considered successful in        promoting “cash/futures convergence”—ensuring that futures        actually track or parallel or correlate highly with the        underlying cash or spot instrument. Or to put it another way,        that the futures price is efficiently determined.

These futures structures that mimic the value of the underlying cash orspot instrument promote efficient arbitrage by minimizing the economicor monetary differences between futures and spot instruments. Thisefficiency generates macroeconomic benefits in the sense that itenhances the potential effectiveness of a hedge, i.e., it enhances riskmanagement benefits.

Rolling Spot—The disclosed Dividend Accruing Futures (“DAF”), FixedSettlement/Coupon Generating Futures Contract, and Futures ContractUsing Fixed vs. Floating Rate Pass-Through contracts, described in moredetail below, share certain similarities to Rolling Spot contracts thatcontemplate a periodic pass-through from one party to the contract tothe other party. However, Rolling Spot contracts have only been appliedin the context of currency or FX products. Thus, the pass-through is afunction of the applicable short-term interest rate in one currency thatcomprises the subject currency pair vs. the applicable short-terminterest rate in the other currency that comprises the subject currencypair. E.g., if one created a Rolling Spot contract based upon thepairing between the U.S. dollar (USD) and Euro (EUR), then the periodic(daily) pass-through would be reflected in the relationship between USDshort-term rates vs. EUR short-term rates.

The disclosed contracts differ in the sense that pass-through of ashort-term rate component is not contemplated but rather, for example, astock dividend accrual. Further distinguishing this contract fromRolling Spot contracts, the pass-through would be administered on aquarterly basis or semi-annual basis, noting, for example, that in theU.S., dividends are typically paid by corporations on a quarterly basis,U.S. Treasuries make coupon payments semi-annually or IRS contractsadminister cash flows quarterly or semiannually—rather than on a dailybasis as is typical with Rolling Spot contracts.

Rolling Spot contracts are frequently traded in over-the-counter (OTC)markets, most typically in London where they are often marketed as asubset of the “Contract for Differences” or CFD markets. The RollingSpot concept was invented and deployed at CME in 1992.

TRAKRS—Some years ago, CME in partnership with Merrill Lynch, offeredTRAKRS futures contracts which were futures contracts that featured adaily pass-through from long to short reflecting short-term interestrates along with some added amounts—that were NOT passed through fromlong to short but rather retained in the Clearing House and paid out asfees. Notably, this pass-through was never tied to dividends at all.These contracts utilized some other unique features as well, includingan initial marketing period prior to launch where investors wereeffectively solicited to be brought in on the first effective date ofthe contract, akin to the way in which an IPO might be marketed. TRAKRSalso featured a very small contract value to compete with ETFs; a 100%margin scheme for long investors; and, a no-action letter per whichTRAKRS could be sold by SEC Registered Representatives (RRs), i.e.,stock brokers, and placed in securities accounts.

Dividend Accruing Futures (“DAF”) Contracts

The disclosed embodiments relate to a novel futures contractconstruction design featuring a periodic cash payment (passed throughthe exchange Clearing House or CH) from seller (short) to buyer (long).The futures contract is settled in cash to the spot value of thereference underlying index on the final settlement date. It iscontemplated that the reference underlying index shall be the spot valueof a specific stock index, e.g., the Standard & Poor's 500 (S&P 500),Dow Jones Industrial Average (DJIA), NASDAQ-100, etc. Likewise, the cashpayment shall be established by reference to the accrued dividendsassociated with the reference underlying index, e.g., S&P 500, DJIA,NASDAQ-100, etc.

Current stock index futures contracts do not provide for any periodicpayments of any sort but are simply settled in cash based upon the spotvalue of the underlying index upon the final settlement date. As aresult, stock index futures prices will trade at levels, relative to thespot value of the underlying index, which reflect “cost of carry”considerations. Specifically, the futures price will reflect the spotprice plus financing costs less dividends.

Stock Index Futures Price=Spot Stock Index Price+FinancingCharges−Dividends

This is a complexity that presents a “learning curve” of sorts toprospective traders in stock index futures. By providing for a periodiccash payment from short to long (most likely on a quarterly basis butpossibly on a different schedule, e.g., daily, weekly, monthly,annually), our equation is altered to eliminate dividends, simplifyingthe futures contract design.

Stock Index Futures Price=Spot Stock Index Price+Financing Charges

It is possible to list a futures contract that is settled by referenceto the total return associated with a stock index, i.e., a “total returnindex futures.” A total return index is one that incorporates both thefluctuations of the stocks that comprise the index PLUS the accrueddividends associated with those stocks. Note that the return on a totalreturn index by rule exceeds the return on the spot version of the sameindex by an amount equal to the accrued dividends. However the issueassociated with reference to a total return index is the quoted value ofthe total return index is very much disconnected from the quoted spotvalue of the index. This disconnection means that the average tradercannot “relate” to the value of the total return index as it does notresemble the spot index value with which he/she may be accustomed toreferencing.

The disclosed dividend accruing futures maintain a much more direct linkto the spot value of the index, adjusted only by finance chargesrepresented in short-term interest rates.

Consider the following contract specifications for a possible S&P 500Dividend Accruing Futures (DAF) contract which may resemble theconstruction of an Exchange Traded Fund (ETF) but registered andconstructed as a futures contract.

An ETF is a security that tracks an index, a commodity or a basket ofassets like an index fund, but trades like a stock on an exchange. ETFsexperience price changes throughout the day as they are bought and sold.An ETF holds assets such as stocks, commodities, or bonds, and tradesclose to its net asset value over the course of the trading day. MostETFs track an index, such as a stock index or bond index. ETFs may beattractive as investments because of their low costs, tax efficiency,and stock-like features. One of the most widely known ETFs is called theSpider (SPDR), which tracks the S&P 500 index and trades under thesymbol SPY.

Exemplary Contract: S&P 500 Dividend Accruing Futures Contract Value $1× Standard & Poor's 500 Stock Price Index. E.g., if S&P 500 = 1,956.50index points, value of one futures contract nominally valued at$1,956.50 (=$1 × 1,956.50 index points) Contract Months Listing of asingle contract month in March, June, September and December quarterlycycle, extending five (5) years in future. E.g., if contract is listedin Dec-14, we might list single contract maturing Dec-19. Quote Quotedin index points, e.g., 1,956.50, in minimum increments Convention (or“tick size”) of 0.10 index points (or $0.10 per contract unit) DividendAccrual Dividend Accrual Pass-Through payment is made in cash on aPass-Through quarterly basis, from short to long, on 3^(rd) Friday ofquarterly cycle months, equivalent to dividends accrued associated withS&P 500 over quarterly period Interest Rate Interest Rate Pass-Throughpayment is made in cash on a quarterly Pass-Through basis, from long toshort, on 3^(rd) Friday of quarterly cycle months, equivalent to averagedaily 3-month LIBOR rate applied to value of stock index, over quarterlyperiod Hours of Trade Offered exclusively on CME Globex ® electronictrading platform on Mondays-Fridays from 8:30 am-3:15 pm (CT) TradingEnds 3:00 pm (CT) on business day preceding third Friday of contractmonth with contingencies if underlying index should not be published onthat day Final Cash settled to Special Opening Quotation (SOQ) of S&P500 Settlement

This product design eliminates dividend accruals from futures contractpricing. As such, the contract will trade at levels more closelyresembling spot values. This pricing mechanism therefore becomes muchmore closely aligned with spot values and becomes more intuitive fromthe perspective of prospective customers, notably including possibleretail customers.

The essence of the disclosed embodiments is to pass-through an accrueddividend in the context of a futures contract. However, it may alsofurther address the finance charge component of the cost of carryrelationship.

There are two possible ways of addressing the interest rate component:

-   -   1. Interest Rate Pass-Through—Just as a periodic cash payment or        pass-through may be required from short to long reflecting        dividend accrual, a periodic cash pass-through from long to        short reflecting short-term financing rates may be required.        This interest rate pass-through may serve to neutralize the        financing component of cost of carry. The interest rate        pass-through may be administered on a daily or other periodic        basis as appropriate and need not conform to the contemplated        quarterly pass-through associated with accrued dividends. The        net result, having eliminated both dividends and finance charges        from our pricing considerations, is that the futures price        should closely reflect the spot value of the index.    -   2. 100% or 50% Margining—Alternatively, it may be required that        the long post 100% margining in cash which is passed through        (via the Clearing House and Clearing Members) to the account of        the short. The short is thereupon required to post collateral to        secure the receipt of that cash. Or, a 50% cash payment from        long to short, corresponding to typical margin requirements as        administered in spot equity markets, may be required. In any        event, this feature would essentially offset or at least mute to        an extent the leverage associated with buying futures. As a        result, this would tend to offset in whole or part financing        charges from cost of carry considerations, and in turn cause the        futures contract to align much more closely with spot index        levels.

Note that Exchange-Traded Funds (or ETFs) typically align reasonablyclosely with the spot value of the index with which they are designed totrack. These ETFs are margined like other stocks and are constructed tooffer a periodic (generally quarterly) dividend.

Thus, these Dividend Accruing Futures contracts (DAFs) might beconsidered a prospective challenger to the popularity of ETFs. A DAF maybe constructed with the 100% or 50% margining feature as described abovecoupled with a very small (for a futures contract) contract size thatmimics the value of a single ETF share.

Fixed Settlement/Coupon Generating Futures Contracts

The disclosed embodiments relate to a novel futures contractconstruction design featuring a fixed final settlement price andperiodic cash payments (passed through the exchange Clearing House orCH) from seller (short) to buyer (long) fixed at X % of the finalsettlement value.

The futures contract is settled in cash to an arbitrary fixed finalsettlement value, e.g., $100,000, and quoted in percent of that “parvalue,” e.g., 100% of par, 103% of par, 98% of par. Likewise, the cashpayment shall be established by reference to a fixed amount (or“coupon”) applied to the fixed final settlement value. These cashpayments or coupons may be quoted as X % of the final settlement valueand payable on a semi-annual basis, e.g., 2% of $100,000 on an annualbasis or 1% of $100,000 on a semi-annual basis. The disclosedembodiments use of fixed (as opposed to the customary variable) finalsettlement value for a futures contract; coupled with the pass-throughpayment of a fixed “coupon” from short to long on a periodic basis.

The disclosed embodiments present a novel futures contract constructiondesign featuring a fixed final settlement price and periodic cashpayments (passed through the exchange Clearing House or CH) from seller(short) to buyer (long) fixed at X % of the final settlement value.

In particular, the disclosed embodiments feature—(1) a futures contractthat features a fixed, as opposed to variable, final settlement value;and, (2) a futures contract that contemplated a periodic cash payment orpass-through (as in passing from the account of the short to the accountof the long through the Clearing House). Let's consider each in turn.

Fixed Final Settlement Value—Cash-settled futures contracts aretypically settled, per the final settlement date, by reference to the(variable) value of some reference, e.g., a stock index, the value of afixed income security index or interest rate, etc. The disclosedcontract design contemplates that the final settlement value of thefutures contract shall be fixed at some arbitrarily established value,e.g., $100,000 or $1,000,000, possibly quoted in percent of that “parvalue,” e.g., 98% of par, 100% of par, 103% of par.

Coupon Payment—Current (cash-settled) futures contracts do not providefor any periodic payments of any sort but are simply settled in cashbased upon the spot value of a specified underlying reference index orvalue upon the final settlement date. As a result, these futurescontracts will trade at levels, relative to the spot value of theunderlying instrument, which reflects “cost of carry” considerations.Specifically, the futures price will reflect the spot price plusfinancing costs less any payouts associated with the underlyinginstrument, possibly in the form of stock dividends, fixed income couponpayments, etc., and as appropriate in the context of the underlyingreference instrument.

Futures Price=Spot Price+Financing Charges−Payouts

This is a complexity that presents a “learning curve” of sorts toprospective futures traders who are not otherwise familiar withpractices in the futures markets. By providing for a periodic cashpayment from short to long (most likely on a semi-annual basis butpossibly on a different schedule, e.g., daily, weekly, monthly,annually), the equation for the disclosed contract is altered toeliminate payouts, simplifying the futures contract design.

Futures Price=Spot Price+Financing Charges

While these two features depart rather radically from anything that hasever been attempted within the regulatory context of futures markets,the net result is that the structure of the resulting futures contractwill resemble that of a “garden-variety” fixed incomesecurity—specifically a bond or note. There may be some regulatorycontroversy regarding whether a futures contract's final settlementvalue may be fixed rather than variable to the extent that such featuremay be said to eliminate the uncertainty of the final outcome. However,it may be argued that the uncertainty associated with the contract liesin the fact that the value of the contract will fluctuate in price inresponse to a variety of economic factors including prevailing marketinterest rates. Thus, there will be ample volatility or uncertainty inthe value of the contract on an interim basis prior to its finalsettlement value.

There are certainly other futures contracts which are based upon fixedincome securities, notably including CME Group's line of Treasury bondand note futures contracts. These contracts call for the delivery, infinal satisfaction of the contract, of a Treasury security with certainspecified characteristics and using a system of delivery pricedifferentials [the “conversion factor (CF) invoicing system] to accountfor the varying valuation of Treasuries with somewhat different couponsand maturities.

These “classically constructed” Treasury futures have been in use as arisk-management tool dating back to 1977 with great success. But whilethese contracts generally reflect the economic value of Treasurysecurities, they are not constructed to precisely track the cashflows—including periodic coupon payments—of fixed income securities.

The disclosed embodiments track a specifically defined fixed incomeinstrument in terms of maturity and (significantly) coupon payments.

This contract features two rather unique features—(1) a fixed finalsettlement value; and (2) a periodic cash pass-through constructed as a“coupon payment.” The first of these features is, to our knowledge,completely unique in the context of futures markets. There are, however,some products or possibly intellectual properties that utilize periodiccash pass-through payments. Significantly, none of these items—asdocumented below—were ever constructed as a coupon payment.

Coupon Bearing Futures (CBFs)—Consider the following contractspecifications for a possible Coupon Bearing Futures (CBF) contractwhich are intended to reflect the construction and cash flows of acoupon bearing fixed income instrument such as a Treasury bond ornote—but registered and constructed as a futures contract.

Exemplary Contract: Coupon Bearing Futures (CBF) Contract Value Settledin Cash to a Final Settlement Value of $100,000 (“par value”) ContractMonths Listing of a single contract month in March, June, September andDecember quarterly cycle, extending two (2), five (5), ten (10) orthirty (30) years in future. E.g., if contract is listed in Dec-14, wemight list single 5-year contract maturing Dec-19. Quote Quoted inpercent of par in minimum increments of one-half of one Conventionthirty-second or ½ of 1/32^(nd) of 100% of par. This equates to $15.625per “tick.” Coupon Coupon Pass-Through payment is made in cash on thesemi-annual Pass-Through anniversary of the original listing date of thecontract, paid from short to long. Coupon payment is defined as X % ofpar value (on an annual basis) or ½ of X % of par value (on asemi-annual basis). Thus, a 2% quoted coupon implies a $1,000semi-annual payment. Interest Rate Interest Rate Pass-Through payment ismade in cash on a semi- Pass-Through annual basis, from long to short,the semi-annual anniversary of the original listing date of thecontract, equivalent to average daily 3-month LIBOR rate applied tovalue of stock index, over quarterly period Margins Coupon BearingFutures to be margined and leveraged in much the same way as futures aremargined and leveraged currently - by reference to 1-day'sclose-to-close price risk Hours of Trade Offered exclusively on CMEGlobex ® electronic trading platform on Mondays-Fridays from 8:30am-3:15 pm (CT) Trading Ends 3:00 pm (CT) on business day precedingthird Friday of contract month with contingencies if underlying indexshould not be published on that day Final Cash settled to FinalSettlement Value of $100,000 (“par value”) Settlement

Money Market Futures (MMFs)—In another application of this invention,that would rely solely upon the fixed final settlement value feature—andwhich does not contemplate the periodic payment of a “coupon,” we mayconstruct a “Money Market Futures” (MMF) contract. An MMF is generally afutures contract that is listed with a final settlement date that is oneyear or less in duration. MMFs do not contemplate periodic couponpayments but are settled in cash at a fixed final settlement date, akinto CBFs as explained above.

The net result is that the MMF contract may reflect the cash flowsassociated with a money market instrument and may offer usefulproperties from a risk-management or hedging perspective. Such acontract may be constructed as shown below.

Exemplary Contract: Money Market Futures (MMF) Contract Value Settled inCash to a Final Settlement Value of $1,000,000 (“par value”) ContractMonths Listing of a single contract month in March, June, September andDecember quarterly cycle, extending no more than one year in the future.E.g., if contract is listed in Dec-14, we might list single 1-yearcontract maturing Dec-15. Quote Quoted in percent of par value in0.0001%. E.g., a quote of Convention 99.6234% of par equates to $992,340(=99.6234% × $1,000,000). Minimum price increment or tick size of $10(=0.0001% × $1,000, 000) Daily Interest Interest Rate Pass-Throughpayment is made in cash on a daily basis, Rate Pass- from long to short,equivalent to a designated short-term interest rate, Through e.g.,effective Fed Funds rate, applied to the final settlement or par valueof contract. Margins MMFs to be margined and leveraged in much the sameway as futures are margined and leveraged currently - by reference to1-day's close- to-close price risk Hours of Trade Offered exclusively onCME Globex ® electronic trading platform on Mondays-Fridays from 8:30am-3:15 pm (CT) Trading Ends 3:00 pm (CT) on business day precedingthird Friday of contract month with contingencies if underlying indexshould not be published on that day Final Cash settled to FinalSettlement Value of $1,000,000 (“par value”) Settlement

Aligning Cash-Flows Even More Closely—The essence of the disclosedembodiments is the fixed final settlement value coupled (at least in thecase of the CBF) with a coupon-style cash pass-through—all in thecontext of a futures contract. The concept of a periodic interest ratepass-through as part of the patent invention is included in the possiblefutures contract specifications shown above as a means of furtheraddressing the cost of carry considerations that cause futures prices todepart from the value of a cash or spot item.

This proposed periodic cash pass-through from long to short reflectingshort-term financing rates is proposed to neutralize the financingcomponent of cost of carry. The interest rate pass-through may beadministered on a daily or semi-annual or other periodic basis asappropriate. In any event, the net result is that the futures priceshould closely reflect the spot value of the index.

With respect to converging the pricing of these products with bonds,notes or money market instruments, it may be required that the long post100% margining in cash which is passed through (via the Clearing Houseand Clearing Members) to the account of the short. The short isthereupon required to post collateral to secure the receipt of thatcash. This feature would essentially offset the leverage associated withbuying futures. As a result, this would tend to offset financing chargesfrom cost of carry considerations, and in turn cause the futurescontract and its associated cash flows to align much more closely withspot index levels.

CBFs and MMFs are designed to mimic the cash flows associated withcoupon-bearing fixed income; and, money market instruments,respectively. By more closely aligning the cash flows of an instrumentregistered and offered as a futures contract, we hope to providerisk-management or hedging utilities.

Inflation Protected Futures (“IPF”'s)

The disclosed embodiments relate to Inflation Protected Futures(“IPF”'s) which are novel futures contracts designed to link closelywith inflation as reflected in the Consumer Price Index (CPI), orpossibly other measures of inflation such as the variations on CPI, PPI,Personal Consumption Expenditures, etc. They are cash-settled futuresdesigned to mimic the cash flows associated with Treasury InflationProtected Securities (TIPS). Treasury Inflation-Protected Securities (orTIPS) are the inflation-indexed bonds issued by the U.S. Treasury. Theprincipal is adjusted to the Consumer Price Index (CPI), the commonlyused measure of inflation. When the CPI rises, the principal adjustsupward. If the index falls, the principal adjusts downwards.[9] Thecoupon rate is constant, but generates a different amount of interestwhen multiplied by the inflation-adjusted principal, thus protecting theholder against the official inflation rate (as asserted by the CPI).

This unique futures contract design features the following:

-   -   1. Variable Notional Contract Size—The contract size or trading        unit of an IPF is initially established at some arbitrary par        value, e.g., $100,000, and may be quoted in percent of par,        e.g., 98% of par, 100% of par, 103% of par. Henceforth, the        contract unit is linked to the raw value of the Non-Seasonally        Adjusted (NSA) U.S. City Average All Items Consumer Price Index        for all Urban Consumers (CPI-U), released on a monthly basis.        (See www.bls.gov/cpi/) Specifically, the face value of a        security will fluctuate as a function of the security's Index        Ratio (IR) as identified by the U.S. Treasury Department. (The        Treasury Department published index ratios (IR) for reference in        the context of Treasury Inflation Protected Securities (TIPS).        The IR is the ratio of the Reference CPI for the trade        settlement date to the Reference CPI for the TIPS issue's dated        date. The Index Ratio reflects realized inflation since the        issue date and is used to accrete the face value of the        security. These figures are published at the following        hyperlink:        http://www.treasurydirect.gov/instit/annceresult/tipscpi/tipscpi.htm)        E.g., assume that the futures contract is initially established        with an IR=1.00 or 100% of par. Assume further that the Index        Ratio (IR) increased by 10% and was at 1.10. Thus, the nominal        value of an IPF is adjusted to 110% of par (=100%×1.10). Should        the value of CPI-U should decline over the life of the IPF, the        notional value of an IFP at futures contract maturity is        established at the original par value, providing protection in a        deflationary environment. Note that this contract is distinct        from other futures contracts offered in that the interim and        final notional values of the contract are periodically reset by        reference to inflation. The final cash settlement value is        established at the adjusted notional contract value linked to        the IR, with the exception that it cannot be less than 100% of        par at expiration. This “floor” feature is likewise unique to a        futures contract.    -   2. Coupon Payment—In addition to the variable notional contract        size linked to inflation, the contract also offers a periodic        (e.g. semi-annual) cash payment to be paid from the account of        the short to the account of long, passed through the Exchange        Clearing House. This coupon payment is fixed, upon contract        listing, at X % of the current notional contract value of the        IPF. E.g., if the annual coupon of an IPF was originally        established at 2% and the notional futures contract value is        100% of a par value of $100,000, the annual payment would be 2%        of 100% of $100,000 or $2,000. (It is contemplated that this        value may be paid in two semi-annual payments of $1,000 each for        a total of $2,000.) But if the IR had increased by 10% and was        at 1.10, the IPF's notional value would be adjusted to 110% of        par or $110,000. The coupon rate remains at 2%, resulting in an        interest payment of 2.2% ($2,200) on an annual basis or 1.1%        ($1,100) on a semi-annual basis.

The disclosed embodiments relate to the use of the variable futurescontract size linked to inflation; coupled with the pass-through paymentof a coupon from short to long on a periodic basis that is fixed as apercentage amount of par value but is implicitly linked to inflation asa result of the variable futures contract size linked to inflationmeasures. The disclosed embodiments present a novel futures contractconstruction design that is intended to mimic the cash flows associatedwith a Treasury Inflation Protected Security (TIPS) instrument ascurrently issued on a regular basis by the U.S. Treasury Department.

This futures contract—an Inflation Protected Futures (IPF)—is uniqueinsofar as it is a futures contract that . . . (1) is cash settled to anotional value linked to inflation; and (2) calls for a periodicpass-through from short to long of a cash value that is established as afixed proportion of the notional value of the contract—implicitlylinking this coupon to inflation.

The disclosed embodiments feature—(1) a futures contract that features aperiodically administered notional value that is linked to CPI-U; and,(2) a futures contract that contemplated a periodic cash payment orpass-through (as in passing from the account of the short to the accountof the long through the Clearing House) that is fixed as a percentagevalue but implicitly linked to inflation in light of feature #1.

No other contract design or system is tied to measures of inflation inthis way and which is designed to mimic the cash flows and, therefore,value of a TIPS instrument.

Exchanges, including CME Group, have listed CPI futures in the past.These products were cash settled to the fluctuating value of the CPI asthe final settlement date. Although the concept was sound, theseproducts uniformly failed. Still, these products did not mimic the cashflows or value of a TIPS instrument as directly as does the currentlyproposed solution

This contract features two rather unique features—(1) a periodically(monthly) adjusted notional value, linked to CPI-U; and (2) a periodiccash pass-through constructed as a “coupon payment” but implicitly tiedto inflation because it is applied to the periodically adjusted notionalvalue of the contract.

Inflation Protected Futures (IPFs) are uniquely designed to mimic thecash flows associated with a Treasury Inflation Protected Security(TIPS) as issued by the U.S. Treasury Department. The table belowsummarizes the product design.

Exemplary Contract: Inflation Protected Futures (IPFs) Contract ValueSettled in Cash to a Final Settlement Value of $100,000 (“par value”)adjusted by reference to fluctuations in the raw value of CPI-U.Notional value of futures contract to be adjusted monthly by referenceto Index Ratio (“IR”) as identified by U.S. Treasury Dept. E.g., if theIR increases by 10% from 100% of par, notional contract value isincreased to 110% or par or $110,000. Contract Months Listing of asingle contract month in March, June, September and December quarterlycycle, extending two (2), five (5), ten (10) or thirty (30) years infuture. E.g., if contract is listed in Dec-14, we might list single5-year contract maturing Dec-19. Quote Quoted in percent of par inminimum increments of one-half of one Convention thirty-second or ½ of1/32^(nd) of 100% of par. This equates to $15.625 per “tick.” CouponCoupon Pass-Through payment is made in cash on the semi-annualPass-Through anniversary of the original listing date of the contract,paid from short to long. Coupon payment is defined as X % of(periodically adjusted) par value (on an annual basis) or ½ of X % ofpar value (on a semi- annual basis). Thus, a 2% quoted coupon implies a$1,000 semi- annual payment based upon par value of $100,000. InterestRate Interest Rate Pass-Through payment is made in cash on a semi-Pass-Through annual basis, from long to short, the semi-annualanniversary of the original listing date of the contract, equivalent toaverage daily 3-month LIBOR rate applied to value of stock index, overquarterly period Margins Coupon Bearing Futures to be margined andleveraged in much the same way as futures are margined and leveragedcurrently - by reference to 1-day's close-to-close price risk Hours ofTrade Offered exclusively on CME Globex ® electronic trading platform onMondays-Fridays from 8:30 am-3:15 pm (CT) Trading Ends 3:00 pm (CT) onbusiness day preceding third Friday of contract month with contingenciesif underlying index should not be published on that day Final Cashsettled to Final Settlement Value of $100,000 (“par value”) Settlement

Aligning Cash-Flows Even More Closely—The disclosed embodiments create afutures contract that mimics the cash flows and valuation of a TIPSinstrument—but within the context of a futures contract. The concept ofa periodic short-term interest rate or financing rate pass-through aspart of the patent invention may be included in the possible futurescontract specifications shown above as a means of further addressing thecost of carry considerations that cause futures prices to depart fromthe value of a cash or spot item.

This proposed periodic cash pass-through from long to short reflectingshort-term financing rates is proposed to neutralize the financingcomponent of cost of carry. The interest rate pass-through may beadministered on a daily or semi-annual or other periodic basis asappropriate. In any event, the net result is that the futures priceshould closely reflect the spot value of the index.

With regards to converging the pricing of these products with bonds,notes or money market instruments, it may be required that the long post100% margining in cash which is passed through (via the Clearing Houseand Clearing Members) to the account of the short. The short isthereupon required to post collateral to secure the receipt of thatcash. This feature would essentially offset the leverage associated withbuying futures. As a result, this would tend to offset financing chargesfrom cost of carry considerations, and in turn cause the futurescontract and its associated cash flows to align much more closely withspot index levels. This feature would represent an alternative to theperiodic short-term interest rate pass through as outlined in the tableabove.

IPFs are designed to mimic the cash flows associated with a TIPSinstrument. By more closely aligning the cash flows of an instrumentregistered and offered as a futures contract, we hope to providerisk-management or hedging utilities.

Futures Contract Using Fixed Vs. Floating Rate Pass-Through

The disclosed embodiments relate to a novel futures contractconstruction design featuring a series of periodic cash payments (passedthrough the exchange Clearing House or CH) between seller (short) tobuyer (long). The value of this pass-through amount is establishedperiodically by reference to the differential between an establishedfixed rate (x %) and a floating rate (y %). The fixed rate isestablished in advance of contract listing while the floating rate isestablished at each periodic pass-through date by reference to currentmarket conditions.

The futures contract is settled in cash to an arbitrary fixed finalsettlement value, e.g., $100,000, and quoted in percent of that “parvalue,” e.g., 100% of par, 103% of par, 98% of par. Likewise, the cashpayment shall be established by reference to the difference between apre-established fixed amount (or “coupon”) vs. a floating amount thatmay be tied to any number of different rates, including the ICEAdministration 3-month LIBOR rate, noting that is the same rate vs.which CME Eurodollar futures are settled. These cash payments or couponsmay be quoted as X % of the final settlement value and payable on aperiodic basis, e.g., quarterly or semi-annually.

Other features that are relatively unique may likewise be applied to thefutures contract. The disclosed embodiments relate to the use of fixedvs. floating rate pass-through payment of a fixed “coupon” from short tolong on a periodic basis.

The net result of this contract design is to create a futures contractwhose cash flows, and resulting valuation, closely parallels the cashflows and valuation of an actual interest rate swap (IRS).

Previous contract designs that have been used over the years to addressa futures contract that is based on an IRS instrument were:

-   -   1. CME Swap Contract—In the early 2000s, CME launched an IRS        futures contract that was constructed to dovetail with, and be        readily “spreadable,” vs. a Eurodollar futures contract. It was        cash settled to the quoted fixed rate or coupon rate associated        with IRS instruments of different tenors, e.g., 2-years,        5-years, 10-years. It was quoted as 100—IRS Rate using the        so-called “IMM Index.” This contract traded moderately for some        years but eventually fell into disuse and was delisted.    -   2. CBOT Swap Contract—About the same time as CME launched its        original swap futures contract, the CBOT launched their own        version of a swap contract. It was constructed to dovetail with,        and be readily spreadable, vs. CBOT Treasury futures contracts.        It was settled in cash to a value calculated as the price of a        bond with a nominal coupon rate given a yield equal to the fixed        rate or coupon rate associated with IRS instruments of different        tenors, e.g., 5-years, 10-years, 30-years. It was quoted in        percent of par in increments of 1/32nd of par or fractions        thereof—akin to a Treasury security or Treasury futures        contract. This contract also traded moderately but fell into        disuse.    -   3. LIFFE Swapnote Futures—The London International Financial        Futures Exchange (LIFFE) also listed a swap based futures        contract in the early 2000s referred to as swapnote futures. It        was constructed in a manner that was very similar to that used        by CBOT. However, it utilized a more involved calculation to        identify the value of the contract. Rather than using a singular        yield like the CBOT model, it referred to various values for IRS        instruments across the spectrum of the yield curve—the swap        curve—to find the value of each individual reset or payment        date. This design was offered under license from a firm which        had patented this specific concept. These contracts continue to        be lightly traded at LIFFE.    -   4. CME Group Deliverable Swap Futures (DSFs)—In December 2012,        CME Group launched DSFs. These are futures contracts that call        for the delivery of actual IRS instruments of varying tenors        (2-year, 5-year, 10-year and 30-year) that are cleared and held        by the CME Clearing House (CH). These contracts are quoted as        100 less the Non-Par Value (NPV) of the swap. They are listed        with a pre-established coupon rate. These contracts are actively        traded and growing in popularity.

The swap futures contracts discussed above have all achieved varyingdegrees of success or failure, as the case may be. They all reflect thevalue, to one degree or another, of an actual interest rate swap.Significantly, however, none of them truly parallel the cash flowsassociated with an actual IRS instrument.

The current proposal for an IRSF addresses this issue with use of aperiodic fixed vs. floating rate cash flow.

It is certainly very feasible to use the swap contracts discussed aboveto hedge the risks associated with holding an actual IRS instrument.However, in all cases, this involves some effort to model thesensitivity of the value of these futures contract relative to thesensitivity of the actual IRS instrument to be hedged, to a dynamic rateenvironment.

The disclosed embodiments are intended to create a futures contractdesign which is simpler and more straightforward to deploy for riskmanagement purposes. Because we seek to mimic the cash flows of an IRSinstrument, this should minimize the modeling necessary to create anefficacious hedge strategy.

In order to illustrate how this contract might be constructed, considerthe following summary futures contract design specifications whichfeatures the fixed final settlement value coupled with the periodic cashpayment or pass-through tied to a value calculated as a fixed vs.floating rate payment.

Exemplary Contract: Interest Rate Swap Futures (IRSFs) Contract ValueSettled in Cash to a Final Settlement Value of $100,000 (“par value”)Contract Months Listing of a single contract month in March, June,September and December quarterly cycle, extending two (2), five (5), ten(10) or thirty (30) years in future. E.g., if contract is listed inDec-14, we might list single 5-year contract maturing Dec-19. QuoteQuoted in percent of par value, e.g., 98%, 100%, 103% of the Convention$100,000 par value. Quoted in minimum increments or ticks of 0.01% ofpar which equates to $10.00 per tick (=0.01% × $100,000) Fixed vs. Thedifferential between the established fixed coupon rate and floatingFloating Rate rate is paid in cash on the quarterly anniversary of theoriginal listing Pass-Through date of the contract. If fixed couponrate > floating rate, the net payment flows from short to long; if fixedcoupon rate < floating rate, the net payment flows from long to short.Fixed Coupon Is established by Exchange at time of contract listing togenerally Rate reflect prevailing swap rates, rounded to nearest ⅛^(th)of 1%, e.g., 1.125%, 1.25%, 1.375%, 1.500%. Fixed coupon rate paid semi-annually based upon par value of contract. Floating Rate Is establishedby reference to 3-month LIBOR rate and paid quarterly based upon parvalue of contract. Margins IRSFs to be margined and leveraged in muchthe same way as futures are margined and leveraged currently - byreference to 1-day's close- to-close price risk Hours of Trade Offeredexclusively on CME Globex ® electronic trading platform onMondays-Fridays from 8:30 am-3:15 pm (CT) Trading Ends 3:00 pm (CT) onbusiness day preceding third Friday of contract month with contingenciesif underlying index should not be published on that day Final Cashsettled to Final Settlement Value of $100,000 (“par value”) Settlement

IRSFs are designed to mimic the cash flows associated with fixed vs.floating rate IRS instruments. By more closely aligning the cash flowsof an instrument registered and offered as a futures contract, we hopeto provide risk-management or hedging utilities.

Cash Flow Examples

Theoretical examples of the cash flows potentially associated with eachof the four (4) contract designs are set forth below.

Dividend Accruing Futures (DAFs)

Assume that a futures contract is created that is valued at $50×S&P 500Stock Market Index. The value of a conventionally constructed stockindex futures may be modeled, by reference to “cost of carry”considerations as follows.

$\begin{matrix}{{{Conventional}\mspace{14mu} {Futures}} = {{Spot} + {{Finance}\mspace{14mu} {Costs}} - {{Anticipated}\mspace{14mu} {Dividends}}}} \\{= {{{Spot} \times \left\lbrack {1 + {\left( \frac{days}{360} \right) \times {Rate}}} \right\rbrack} -}} \\{{{Anticipated}\mspace{14mu} {Dividends}}}\end{matrix}$

Thus, the value of a conventionally constructed stock index futuresprice may be calculated as 1,892.66 as of the 93rd day until expirationgiven a spot index value of 1,900.00 and an assumed financing orinterest rate of 0.40%. But the Dividend Accruing Futures or DAF pricewould be further adjusted in anticipation of the dividend pass-throughamount.

DAF=Spot+Finance Costs−Anticipated Dividends+Anticipated Pass ThroughAmount

Note that the simplifying assumption of a 9.00 index point quarterlyaccrual of dividends without any “surprises” or unanticipated deviancesfrom that assumption is being used. Thus, a somewhat greater value forthe DAF is calculated at 1,910.66 on the 93^(rd) day until expiration.This value anticipates the 9.00 index point pass-through on the 90^(th)day until expiration along with a further assumed 9.00 index pointpass-through on the final settlement day some 93 days later.

Nominal Days til Stock Conventional Conventional DAF ContractAnticipated Pass- Expiration Index Futures Basis DAF Basis ValueDividends Through 93 1,900.00 1,892.66 −7.34 1,910.66 10.66 $95,533 9.3092 1,920.00 1,912.76 −7.24 1,930.76 10.76 $96,538 9.20 91 1,890.001,882.81 −7.19 1,900.81 10.81 $95,041 9.10 90 1,890.00 1,882.89 −7.111,891.89 1.89 $94,595 9.00 9.00 89 1,870.00 1,862.95 −7.05 1,871.95 1.95$93,597 8.90

It has been assumed, for the purposes of illustration, that the spotindex value is perfectly stable on the day prior to the pass-through andon the day of the actual pass-through. Note that the DAF basis declinessubstantially on the pass-through day. It will be therefore appreciatedthat this mimic the behavior of a stock or ETF on the ex-dividend date.

Note that the pass-through amount may be anticipated but not necessarilyknown with certainty until it is fully accrued by the periodicpass-through date.

Fixed Settlement/Coupon Generating Futures

This contract design is intended to mimic the behavior of a Treasurysecurity that generates semi-annual interest payments. The value of thefutures contract is fixed as of the final settlement date at a nominalvalue, call it $100,000.

The value of a conventionally constructed futures contract may varyprior to that point in time as a function of cost of carryconsiderations. This is a function of the finance costs associated withbuying and holding the security—or short-term interest rates less anyanticipated payouts associated with the security in the form of couponpayments. This is very much analogous to the analysis above in thecontext of DAFs.

Conventional Futures=Spot+Finance Costs−Anticipated Coupons

But the value of the hybrid futures contract contemplated here isfurther adjusted by the anticipated receipt of the pass-through—whichrepresents a pseudo coupon payment as it is calculated as a function ofa fixed rate applied to a fixed base or principle value.

Hybrid Futures=Spot+Finance Costs−Anticipated Coupons+Pass ThroughAmount

For purposes of this exposition, it is assumed that yields arecompletely stable and, as a result, the futures price is quite stableapart from the impact of cost of carry considerations. This is anunrealistic assumption but it nonetheless allows one to isolate theimpact of carry considerations upon the value of a conventional futuresvs. one that is constructed using our hybrid method and featuring apass-through from short to long that resembles a coupon payment.

Fixed Final Conventional Normal Hybrid Hybrid Pass- Anticipated DaysSettlement Futures Basis Futures Basis Through Coupons 183 $100,000$99,187 $813.33 $101,187 −$1,187 $1,016.67 182 $100,000 $99,191 $808.89$101,191 −$1,191 $1,011.11 181 $100,000 $99,196 $804.44 $101,196 −$1,196$1,005.56 180 $100,000 $99,200 $800.00 $100,200 −$200 $1,000 $1,000.00179 $100,000 $99,204 $795.56 $100,204 −$204 $994.44

Note that the value of the hybrid futures contract experiences adramatic decline on the day of the pass-through payment. This is akin tothe way in which an actual fixed income security would behave in thesense that when one buys a Treasury note or bond, one pays the price ofthe security plus interest accrued since the last semi-annual interestpayment date. Note that the hybrid futures contract value performs akinto the way in which the “all-in” value of a cash note or bond wouldbehave approaching a coupon payment date.

Inflation Protected Futures

Inflation Protected Futures (“IPF”'s) represent a variation on the themeof a security that mimics the cash flows of a cash bond or note, asdiscussed above. But these futures contracts are intended to mimic theperformance of a Treasury Inflation Protected Security or TIPS. TIPS aresold by the U.S. Treasury with a stated principle or face value and afixed coupon paid semi-annually. But the principal value of the securityis tied to the Consumer Price Index for All Urban Consumers or CPI-U.Every month, as the CPI-U is released, the effective principal value ofthe security is adjusted. Thus, if the security has an initial principlevalue of $100,000 but inflation rises by 3% (for example) over thecourse of a year, the principal value is adjusted upwards to $103,000.The IPF futures contract works in an analogous manner.

To illustrate, assume that the IPF has a face or principal value of$100,000. But on the day on which there is 180 days remaining until IPFexpiration, CPI-U is released and shows an (unexpected) gain of +1% ininflation. Thus, the principal value of the futures contract is upwardlyadjusted to $101,000 or upwardly adjusted by 1%. Assume that the couponpayment of 2% annually or 1% on a semi-annual basis is due on the daywhen there are 181 days left until expiration. This implies thatpass-through amount from short to long would equal $1,000 or 1% of$100,000. Had the pass—through value become due when the principal valuewas upwardly adjusted to $101,000, that pass-through value would havebeen $1,010 (=1% of $101,000).

Principal Normal Normal Hybrid Pass- Days Value Futures Basis FuturesHybrid Basis Through Coupon 183 $100,000 $99,187 $813.33 $101,197−$1,197 $1,016.67 182 $100,000 $99,191 $808.89 $101,201 −$1,201$1,011.11 181 $100,000 $99,196 $804.44 $100,206 −$206 $1,000 $1,005.56180 $101,000 $100,192 $808.00 $101,202 −$202 $1,010.00 179 $101,000$100,196 $803.51 $101,206 −$206 $1,004.39

Again, the value of the IPF mimics the “all-in” value (price plusaccrued interest) of the TIPS. We have also applied the very simplifying(and ultimately unrealistic) assumption that marketplace yields andtherefore price levels are stable over the course of these days. Note,that regardless of the fluctuations of the market, the principal valueagainst which the final futures settlement price are based and againstwhich the coupon pass-through amount is calculated, is as indicated inour table.

Fixed vs. Floating Rate Futures

The Fixed vs. Floating Rate Futures (Interest Rate Swap Futures(“IRSF”)) is a futures contract that mimics the performance of a fixedvs. floating interest rate swap instrument as might be offered on anover-the-counter (OTC) basis. For purpose of this illustration, assumethat the futures contract is constructed to provide for a quarterlypass-through that reflects a quarterly coupon of 2% and a floating ratetied to the ICE Administration Ltd. LIBOR rate—which happens to be 1.6%in our example. Assume for purposes of this illustration that rates arestable over the course of the days depicted in our example. Theprincipal value of the futures contract is fixed at $100,000 atexpiration. We have also applied other simplifying assumptions includinguse of a Act/360-day count basis.

The differential between the 2% fixed rate and the 1.4% floating rate is0.6% on an annualized basis. Applied semi-annual to the principal valueof $100,000, we have a pass-through payment from short to long equal to$300 [=(2%−1.4%)×$100,000].

Principal Normal Normal Hybrid Pass- Fixed vs. Days Value Futures BasisFutures Hybrid Basis Through Floating 183 $100,000 $99,898 $101.67$100,498 −$498 $305.00 182 $100,000 $99,899 $101.11 $100,499 −$499$303.33 181 $100,000 $99,899 $100.56 $100,199 −$199 $300 $301.67 180$100,000 $99,900 $100.00 $100,200 −$200 $300.00 179 $100,000 $99,901$99.44 $100,201 −$201 $298.33

Again, this product mimics the cash flows of interest rate swapinstruments that are available for trading on an OTC basis.

Referring to FIG. 4, an illustrative embodiment of a general computersystem 400 is shown. The computer system 400 can include a set ofinstructions that can be executed to cause the computer system 400 toperform any one or more of the methods or computer based functionsdisclosed herein. The computer system 400 may operate as a standalonedevice or may be connected, e.g., using a network, to other computersystems or peripheral devices. Any of the components discussed above maybe a computer system 400 or a component in the computer system 400. Thecomputer system 400 may implement a match engine, margin processing,payment or clearing function on behalf of an exchange, such as theChicago Mercantile Exchange, of which the disclosed embodiments are acomponent thereof.

In a networked deployment, the computer system 400 may operate in thecapacity of a server or as a client user computer in a client-serveruser network environment, or as a peer computer system in a peer-to-peer(or distributed) network environment. The computer system 400 can alsobe implemented as or incorporated into various devices, such as apersonal computer (PC), a tablet PC, a set-top box (STB), a personaldigital assistant (PDA), a mobile device, a palmtop computer, a laptopcomputer, a desktop computer, a communications device, a wirelesstelephone, a land-line telephone, a control system, a camera, a scanner,a facsimile machine, a printer, a pager, a personal trusted device, aweb appliance, a network router, switch or bridge, or any other machinecapable of executing a set of instructions (sequential or otherwise)that specify actions to be taken by that machine. In a particularembodiment, the computer system 400 can be implemented using electronicdevices that provide voice, video or data communication. Further, whilea single computer system 400 is illustrated, the term “system” shallalso be taken to include any collection of systems or sub-systems thatindividually or jointly execute a set, or multiple sets, of instructionsto perform one or more computer functions.

As illustrated in FIG. 4, the computer system 400 may include aprocessor 402, e.g., a central processing unit (CPU), a graphicsprocessing unit (GPU), or both. The processor 402 may be a component ina variety of systems. For example, the processor 402 may be part of astandard personal computer or a workstation. The processor 402 may beone or more general processors, digital signal processors, applicationspecific integrated circuits, field programmable gate arrays, servers,networks, digital circuits, analog circuits, combinations thereof, orother now known or later developed devices for analyzing and processingdata. The processor 402 may implement a software program, such as codegenerated manually (i.e., programmed).

The computer system 400 may include a memory 404 that can communicatevia a bus 408. The memory 404 may be a main memory, a static memory, ora dynamic memory. The memory 404 may include, but is not limited tocomputer readable storage media such as various types of volatile andnon-volatile storage media, including but not limited to random accessmemory, read-only memory, programmable read-only memory, electricallyprogrammable read-only memory, electrically erasable read-only memory,flash memory, magnetic tape or disk, optical media and the like. In oneembodiment, the memory 404 includes a cache or random access memory forthe processor 402. In alternative embodiments, the memory 404 isseparate from the processor 402, such as a cache memory of a processor,the system memory, or other memory. The memory 404 may be an externalstorage device or database for storing data. Examples include a harddrive, compact disc (“CD”), digital video disc (“DVD”), memory card,memory stick, floppy disc, universal serial bus (“USB”) memory device,or any other device operative to store data. The memory 404 is operableto store instructions executable by the processor 402. The functions,acts or tasks illustrated in the figures or described herein may beperformed by the programmed processor 402 executing the instructions 412stored in the memory 404. The functions, acts or tasks are independentof the particular type of instructions set, storage media, processor orprocessing strategy and may be performed by software, hardware,integrated circuits, firm-ware, micro-code and the like, operating aloneor in combination. Likewise, processing strategies may includemultiprocessing, multitasking, parallel processing and the like.

As shown, the computer system 400 may further include a display unit414, such as a liquid crystal display (LCD), an organic light emittingdiode (OLED), a flat panel display, a solid state display, a cathode raytube (CRT), a projector, a printer or other now known or later developeddisplay device for outputting determined information. The display 414may act as an interface for the user to see the functioning of theprocessor 402, or specifically as an interface with the software storedin the memory 404 or in the drive unit 406.

Additionally, the computer system 400 may include an input device 416configured to allow a user to interact with any of the components ofsystem 400. The input device 416 may be a number pad, a keyboard, or acursor control device, such as a mouse, or a joystick, touch screendisplay, remote control or any other device operative to interact withthe system 400.

In a particular embodiment, as depicted in FIG. 4, the computer system400 may also include a disk or optical drive unit 406. The disk driveunit 406 may include a computer-readable medium 410 in which one or moresets of instructions 412, e.g. software, can be embedded. Further, theinstructions 412 may embody one or more of the methods or logic asdescribed herein. In a particular embodiment, the instructions 412 mayreside completely, or at least partially, within the memory 404 and/orwithin the processor 402 during execution by the computer system 400.The memory 404 and the processor 402 also may include computer-readablemedia as discussed above.

The present disclosure contemplates a computer-readable medium thatincludes instructions 412 or receives and executes instructions 412responsive to a propagated signal, so that a device connected to anetwork 420 can communicate voice, video, audio, images or any otherdata over the network 420. Further, the instructions 412 may betransmitted or received over the network 420 via a communicationinterface 418. The communication interface 418 may be a part of theprocessor 402 or may be a separate component. The communicationinterface 418 may be created in software or may be a physical connectionin hardware. The communication interface 418 is configured to connectwith a network 420, external media, the display 414, or any othercomponents in system 400, or combinations thereof. The connection withthe network 420 may be a physical connection, such as a wired Ethernetconnection or may be established wirelessly as discussed below.Likewise, the additional connections with other components of the system400 may be physical connections or may be established wirelessly.

The network 420 may include wired networks, wireless networks, orcombinations thereof. The wireless network may be a cellular telephonenetwork, an 802.11, 802.16, 802.20, or WiMax network. Further, thenetwork 420 may be a public network, such as the Internet, a privatenetwork, such as an intranet, or combinations thereof, and may utilize avariety of networking protocols now available or later developedincluding, but not limited to TCP/IP based networking protocols.

While the computer-readable medium is shown to be a single medium, theterm “computer-readable medium” includes a single medium or multiplemedia, such as a centralized or distributed database, and/or associatedcaches and servers that store one or more sets of instructions. The term“computer-readable medium” shall also include any medium that is capableof storing, encoding or carrying a set of instructions for execution bya processor or that cause a computer system to perform any one or moreof the methods or operations disclosed herein.

In a particular non-limiting, exemplary embodiment, thecomputer-readable medium can include a solid-state memory such as amemory card or other package that houses one or more non-volatileread-only memories. Further, the computer-readable medium can be arandom access memory or other volatile re-writable memory. Additionally,the computer-readable medium can include a magneto-optical or opticalmedium, such as a disk or tapes or other storage device to capturecarrier wave signals such as a signal communicated over a transmissionmedium. A digital file attachment to an e-mail or other self-containedinformation archive or set of archives may be considered a distributionmedium that is a tangible storage medium. Accordingly, the disclosure isconsidered to include any one or more of a computer-readable medium or adistribution medium and other equivalents and successor media, in whichdata or instructions may be stored.

In an alternative embodiment, dedicated hardware implementations, suchas application specific integrated circuits, programmable logic arraysand other hardware devices, can be constructed to implement one or moreof the methods described herein. Applications that may include theapparatus and systems of various embodiments can broadly include avariety of electronic and computer systems. One or more embodimentsdescribed herein may implement functions using two or more specificinterconnected hardware modules or devices with related control and datasignals that can be communicated between and through the modules, or asportions of an application-specific integrated circuit. Accordingly, thepresent system encompasses software, firmware, and hardwareimplementations.

In accordance with various embodiments of the present disclosure, themethods described herein may be implemented by software programsexecutable by a computer system. Further, in an exemplary, non-limitedembodiment, implementations can include distributed processing,component/object distributed processing, and parallel processing.Alternatively, virtual computer system processing can be constructed toimplement one or more of the methods or functionality as describedherein.

Although the present specification describes components and functionsthat may be implemented in particular embodiments with reference toparticular standards and protocols, the invention is not limited to suchstandards and protocols. For example, standards for Internet and otherpacket switched network transmission (e.g., TCP/IP, UDP/IP, HTML, HTTP,HTTPS) represent examples of the state of the art. Such standards areperiodically superseded by faster or more efficient equivalents havingessentially the same functions. Accordingly, replacement standards andprotocols having the same or similar functions as those disclosed hereinare considered equivalents thereof.

The illustrations of the embodiments described herein are intended toprovide a general understanding of the structure of the variousembodiments. The illustrations are not intended to serve as a completedescription of all of the elements and features of apparatus and systemsthat utilize the structures or methods described herein. Many otherembodiments may be apparent to those of skill in the art upon reviewingthe disclosure. Other embodiments may be utilized and derived from thedisclosure, such that structural and logical substitutions and changesmay be made without departing from the scope of the disclosure.Additionally, the illustrations are merely representational and may notbe drawn to scale. Certain proportions within the illustrations may beexaggerated, while other proportions may be minimized. Accordingly, thedisclosure and the figures are to be regarded as illustrative ratherthan restrictive.

One or more embodiments of the disclosure may be referred to herein,individually and/or collectively, by the term “invention” merely forconvenience and without intending to voluntarily limit the scope of thisapplication to any particular invention or inventive concept. Moreover,although specific embodiments have been illustrated and describedherein, it should be appreciated that any subsequent arrangementdesigned to achieve the same or similar purpose may be substituted forthe specific embodiments shown. This disclosure is intended to cover anyand all subsequent adaptations or variations of various embodiments.Combinations of the above embodiments, and other embodiments notspecifically described herein, will be apparent to those of skill in theart upon reviewing the description.

The Abstract of the Disclosure is provided to comply with 37 C.F.R.§1.72(b) and is submitted with the understanding that it will not beused to interpret or limit the scope or meaning of the claims. Inaddition, in the foregoing Detailed Description, various features may begrouped together or described in a single embodiment for the purpose ofstreamlining the disclosure. This disclosure is not to be interpreted asreflecting an intention that the claimed embodiments require morefeatures than are expressly recited in each claim. Rather, as thefollowing claims reflect, inventive subject matter may be directed toless than all of the features of any of the disclosed embodiments. Thus,the following claims are incorporated into the Detailed Description,with each claim standing on its own as defining separately claimedsubject matter.

It is therefore intended that the foregoing detailed description beregarded as illustrative rather than limiting, and that it be understoodthat it is the following claims, including all equivalents, that areintended to define the spirit and scope of this invention.

We claim:
 1. A computer implemented method of facilitating a paymentbetween traders based on a first position in a first instrument held bya first trader to which a second trader is a counterparty, the methodcomprising: determining, by a payment processor based on the firstposition, the amount of a payment to be made from one of the first orsecond trader to the other of the first or second trader in advance ofsettlement thereof, the amount of the payment being further based onaccrued dividends associated with a reference index; assigning,automatically by the payment processor based on the first position, asecond position to the first trader in a futures contract characterizedby a settlement date, a quantity and a price, the second position beingcharacterized by a value based on the quantity and the price of thefutures contract as of the assigning, and a third position to the secondtrader, counter to the second position, in the futures contract, thefirst and second traders not being identified to each other; valuing, bya settlement processor upon occurrence of the settlement date, thefutures contract at a spot value different from the price of the futurescontract, the spot value being based on the determined payment amount;and modifying, by a margin processor, a first account record associatedwith the first trader and a second account record associated with thesecond trader, both stored in an account database stored in a memorycoupled with the processor, to reflect a credit to the account of thefirst trader and a debit from the account of the second trader in theamount of the difference between the value of the second position andthe spot value when the difference represents a loss for the secondtrader or to reflect a debit from the account of the first trader and acredit to the account of the second trader in the amount of thedifference between the value of the second position and the spot valuewhen the difference represents a loss for the first trader.
 2. Thecomputer implemented method of claim 1 wherein the reference indexcomprises one of the S&P 500, the DJIA or the NASDAQ
 100. 3. Thecomputer implemented method of claim 1 further comprising: when theaccount of the first trader is credited and the account of the secondtrader is debited: determining, by the payment processor, the amount ofan interest payment to be made from the first to the second trader inadvance of settlement thereof based on the amount credited to the firsttrader; assigning, by the payment processor, a fourth position to thefirst trader in a futures contract characterized by a settlement date, aquantity and a price, the fourth position being characterized by a valuebased on the quantity and the price of the futures contract as of theassigning, and a fifth position to the second trader, counter to thefourth position, in the futures contract, the first and second tradersnot being identified to each other; valuing, by the settlement processorupon occurrence of the settlement date, the futures contract at a spotvalue different from the price of the futures contract, the spot valuebeing based on the determined interest payment amount; and modifying, bythe margin processor, the first and second account records in theaccount database to reflect a debit from the account of the first traderand a credit to the account of the second trader in the amount of thedifference between the value of the second position and the spot value.4. The computer implemented method of claim 1 further comprising: whenthe account of the first trader is debited and the account of the secondtrader is credited: determining, by the payment processor, the amount ofan interest payment to be made from the second to the first trader inadvance of settlement thereof based on the amount credited to the firsttrader; assigning, by the payment processor, a sixth position to thefirst trader in a futures contract characterized by a settlement date, aquantity and a price, the sixth position being characterized by a valuebased on the quantity and the price of the futures contract as of theassigning, and a seventh position to the second trader, counter to thesixth position, in the futures contract, the first and second tradersnot being identified to each other; valuing, by the settlement processorupon occurrence of the settlement date, the futures contract at a spotvalue different from the price of the futures contract, the spot valuebeing based on the determined interest payment amount; and modifying, bythe margin processor, the first and second account records in theaccount database to reflect a credit to the account of the first traderand a debit from the account of the second trader in the amount of thedifference between the value of the second position and the spot value.5. The computer implemented method of claim 1 wherein the quantity offutures contract is one, the assigning of the second and third positionsto the first and second traders respectively, further comprisingassigning the second and third positions in a plurality of the futurescontract, the quantity of the plurality of the futures contract beingdetermined based on the payment amount.
 6. The computer implementedmethod of claim 1 wherein the value of the second and third positions asof the assigning is one of zero or non-zero.
 7. The computer implementedmethod of claim 1 wherein the determining, assigning, valuing andmodifying are performed periodically.
 8. The computer implemented methodof claim 7 wherein the determining, assigning, valuing and modifyingoccur one of quarterly, semiannually, or annually.
 9. The computerimplemented method of claim 1 wherein the determining of the paymentamount occurs upon occurrence of the settlement date.
 10. The computerimplemented method of claim 1 wherein the quantity of the futurescontract is one, the assigning of the second and third positions to thefirst and second traders respectively, further comprising assigning thesecond and third positions in a plurality of the futures contract, thequantity of the plurality of the futures contract being determined basedon the payment amount.
 11. The computer implemented method of claim 1wherein the spot value is valued based on a multiplier and a finalsettlement value.
 12. The computer implemented method of claim 1 whereinthe first instrument comprises a futures contract.
 13. A system forfacilitating a payment between traders based on a first position in afirst instrument held by a first trader to which a second trader is acounterparty, the system comprising: a payment processor coupled with amemory and operative to determine, based on the first position, theamount of a payment to be made from one of the first or second trader tothe other of the first or second trader in advance of settlementthereof, the amount of the payment being further based on accrueddividends associated with a reference index; and wherein the paymentprocessor is further operative to automatically assign, based on thefirst position, a second position to the first trader in a futurescontract characterized by a settlement date, a quantity and a price, thesecond position being characterized by a value based on the quantity andthe price of the futures contract as of the assignment, andautomatically assign a third position to the second trader, counter tothe second position, in the futures contract, the first and secondtraders not being identified to each other; a settlement processorcoupled with the memory and operative to value, upon occurrence of thesettlement date, the futures contract at a spot value different from theprice of the futures contract, the spot value being based on thedetermined payment amount; and a margin processor coupled with thesettlement processor and the memory and operative to modify a firstaccount record associated with the first trader and a second accountrecord associated with the second trader, both stored in an accountdatabase stored in the memory, to reflect a credit to the account of thefirst trader and a debit from the account of the second trader in theamount of the difference between the value of the second position andthe spot value when the difference represents a loss for the secondtrader, or to reflect a debit from the account of the first trader and acredit to the account of the second trader in the amount of thedifference between the value of the second position and the spot valuewhen the difference represents a loss for the first trader.
 14. Thesystem of claim 13 wherein the reference index comprises one of the S&P500, the DJIA or the NASDAQ
 100. 15. The system of claim 13 furthercomprising: when the account of the first trader is credited and theaccount of the second trader is debited: the payment processor beingfurther operative to determine the amount of an interest payment to bemade from the first to the second trader in advance of settlementthereof based on the amount credited to the first trader, assign afourth position to the first trader in a futures contract characterizedby a settlement date, a quantity and a price, the fourth position beingcharacterized by a value based on the quantity and the price of thefutures contract as of the assignment, and assign a fifth position tothe second trader, counter to the fourth position, in the futurescontract, the first and second traders not being identified to eachother; the settlement processor being further operative to value, uponoccurrence of the settlement date, the futures contract at a spot valuedifferent from the price of the futures contract, the spot value beingbased on the determined interest payment amount; and the marginprocessor being further operative to modify the first and second accountrecords in the account database to reflect a debit from the account ofthe first trader and a credit to the account of the second trader in theamount of the difference between the value of the second position andthe spot value.
 16. The system of claim 13 further comprising: when theaccount of the first trader is debited and the account of the secondtrader is credited: the payment processor being further operative todetermine the amount of an interest payment to be made from the secondto the first trader in advance of settlement thereof based on the amountcredited to the first trader, assign a sixth position to the firsttrader in a futures contract characterized by a settlement date, aquantity and a price, the sixth position being characterized by a valuebased on the quantity and the price of the futures contract as of theassignment, and assign a seventh position to the second trader, counterto the sixth position, in the futures contract, the first and secondtraders not being identified to each other; the settlement processorbeing further operative to value, upon occurrence of the settlementdate, the futures contract at a spot value different from the price ofthe futures contract, the spot value being based on the determinedinterest payment amount; and the margin processor being furtheroperative to modify the first and second account records in the accountdatabase to reflect a credit to the account of the first trader and adebit from the account of the second trader in the amount of thedifference between the value of the second position and the spot value.17. The system of claim 13 wherein the quantity of futures contract isone, the payment processor being further operative to assign the secondand third positions in a plurality of the futures contract, the quantityof the plurality of the futures contract being determined based on thepayment amount.
 18. The system of claim 13 wherein the value of thesecond and third positions as of the assignment is one of zero ornon-zero.
 19. The system of claim 13 wherein the payment processordetermines the payment amount periodically.
 20. The system of claim 19wherein the payment processor determines the payment amount one ofquarterly, semiannually, or annually.
 21. The system of claim 13 whereinthe payment processor is operative to determine the payment amount uponoccurrence of the settlement date.
 22. The system of claim 13 whereinthe quantity of the futures contract is one, the assigning of the secondand third positions to the first and second traders respectively,further comprising assigning the second and third positions in aplurality of the futures contract, the quantity of the plurality of thefutures contract being determined based on the payment amount.
 23. Thesystem of claim 13 wherein the spot value is valued based on amultiplier and a final settlement value.
 24. The system of claim 13wherein the first instrument comprises a futures contract.
 25. A systemfor facilitating a payment between traders based on a first position ina first instrument by a first trader to which a second trader is acounterparty, the system comprising: means for determining, based on thefirst position, the amount of a payment to be made from one of the firstor second trader to the other of the first or second trader in advanceof settlement thereof, the amount of the payment being further based onaccrued dividends associated with a reference index; means forassigning, based on the first position, a second position to the firsttrader in a futures contract characterized by the settlement date, aquantity and a price, the second position being characterized by a valuebased on the quantity and the price of the futures contract as of theassigning, and a third position to the second trader, counter to thesecond position, in the futures contract, the first and second tradersnot being identified to each other; means for valuing, upon occurrenceof the settlement date, the futures contract at a spot value differentfrom the price of the futures contract, the spot value being based onthe determined payment amount; and means for modifying the first accountrecord associated with the first trader and a second account recordassociated with the second trader, both stored in an account databasestored in a memory to reflect a credit to the account of the firsttrader and a debit from the account of the second trader in the amountof the difference between the value of the second position and the spotvalue when the difference represents a loss for the second trader or toreflect a debit from the account of the first trader and a credit to theaccount of the second trader in the amount of the difference between thevalue of the second position and the spot value when the differencerepresents a loss for the first trader.
 26. A system for facilitating apayment between traders based on a first position in a first instrumentheld by a first trader to which a second trader is a counterparty, thesystem comprising: first logic stored in a memory and executable by aprocessor to determine, based on the first position, the amount of apayment to be made from one of the first or second trader to the otherof the first or second trader in advance of settlement thereof, theamount of the payment being further based on accrued dividendsassociated with a reference index; the first logic being furtherexecutable to automatically assign, based on the first position, asecond position to the first trader in a futures contract characterizedby the settlement date, a quantity and a price, the second positionbeing characterized by a value based on the quantity and the price ofthe futures contract as of the assignment, and a third position to thesecond trader, counter to the second position, in the futures contract,the first and second traders not being identified to each other; secondlogic stored in the memory and executable by the processor to value,upon occurrence of the settlement date, the futures contract at a spotvalue different from the price of the futures contract, the spot valuebeing based on the determined payment amount; and third logic stored inthe memory and executable by the processor to modify a first accountrecord associated with the first trader and second account recordassociated with the second trader, both stored in an account databasestored in the memory to reflect a credit to the account of the firsttrader and a debit from the account of the second trader in the amountof the difference between the value of the second position and the spotvalue when the difference represents a loss for the second trader, or toreflect a debit from the account of the first trader and a credit to theaccount of the second trader in the amount of the difference between thevalue of the second position and the spot value when the differencerepresents a loss for the first trader.